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Mazor Robotics Ltd. (NASDAQ:MZOR)

Q2 2014 Earnings Conference Call

August 5, 2014 8:30 AM ET

Executives

Michael Polyviou – IR

Ori Hadomi – CEO

Sharon Levita – CFO

Analysts

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Matt Taylor – Barclays

Kathleen McGrath – WallachBeth Capital LLC

Mike Matson – Needham & Co.

Jose Haresco – JMP Securities, LLC

Operator

Greetings and welcome to the Mazor Robotics Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

I would now like to turn the conference over to your host. Michael Polyviou. Thank you sir you may begin.

Michael Polyviou

Thank you Kevin. We also want to thank you everyone for joining us for today on Mazor Robotics conference call and webcast to review the financial results for the second quarter ended June 30, 2014. On the call today are Ori Hadomi, Chief Executive Officer and Sharon Levita, Chief Financial Officer.

Before turning the call over to management I would like to make following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe estimate, expect, intend, guidance, confident, target, projects and other similar expressions typically used applies to forward-looking statements.

These forward-looking statements include but are not limited to the statements regarding growth engines and pipelines and the statements regarding Mazor’s 2014 plans and growth strategy. These forward-looking statements are not guarantees of future performance and may involve and are subject to risk and uncertainties and other factors that may affect Mazor’s business, financial conditions and other operating results which include but are not limited to the risk factors and other qualifications contained in Form-20F and other reports filed by Mazor with the SEC to which your attention is directed.

Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Mazor expressly disclaims any intent or obligation to update these forward-looking statements. During this call, we may also present certain non-GAAP financial measures such as non-GAAP net loss and net loss per share.

In Mazor’s press release and the financial tables issued earlier today which is located on our website at www.mazorrobotics.com you will find our definitions of these non-GAAP financial measures a reconciliation of these non-GAAP financial measures with closest GAAP financial measures as well as discussion about why we think these non-GAAP financial measures are relevant for results.

The financial measures are included for benefit of investors and should not be considered instead of the GAAP measures.

With that, I would like to turn the call over to Ori. Ori?

Ori Hadomi

Thank you Michael. Good morning and good afternoon everyone depending on where you are listening from. Welcome to our second quarter 2014 conference call. I would like to begin by highlighting our Q2 performance and then I will spend a few minutes outlining the market environment and our growth strategy.

In 2014 second quarter, we recognized revenue for four Renaissance systems, two in the U.S. and two internationally. As we indicated in early July we had several active transactions that were still being pursued by our team even in the last day of the quarter. I’ll have an update on these efforts later in my remarks. But I can first confirm upfront that we have already converted one of these active transactions into revenue during the third quarter. So let me begin with our U.S. sales.

The two systems we sold in Q2 were in North Carolina and Nebraska new states for us. In North Carolina the systems were sold to New Hanover Regional Medical in Wilmington, North Carolina which is a teaching side affiliated with [inaudible] University of North Carolina Chapel Hill School of Medicine. In the previous quarter we sold two other teaching hospitals affiliated with academic centers steadily building our presence in this segment to five centers in U.S. alone with several more in Europe and Asia.

Our expectations are exceeding the academic centers will positively influence the rest of these segments due to their competitiveness. Furthermore, we believe that academic centers will support our effort to build awareness of the Renaissance technology within the non-academic centers. While we are pleased with these developments it is important to note that paradoxically while the academic centers are usually quick to flow new technology the sales process to their institutions is usually lengthier than to non-academic subsidiaries relatively.

In the broadcast the Renaissance system was sold to Blind Medical Center in New England and new healthcare organization. It was the first system sold with the brain module following the commercial launch at the American Association of Neurological Surgeons Annual Meeting in April of this year.

As I have explained in the past launching the brain module is an important achievement for Mazor as it explains the utility of our Renaissance system enhancing its potential clinical utilization. To-date worldwide the Renaissance has been an integral part of more than 80 brain surgeries completed successfully at seven hospitals.

We anticipate the brain model will be used mainly for Deep Brain Stimulation or DBS. DBS procedures are currently used mainly to treat movement disorders associated with Parkinsons’ division. But the indication for DBS continue to expand steadily widening the pool of patients. We have priced a brain module at 129,000 bringing the total system lease price for both brain and spine capabilities to 978,000. However, hospitals can still purchase the system with only application be it spine or brain and maintain a fixed price at $849,000.

Internationally we sold two systems to our distributions partners in Taiwan and Hong Kong the latter being a new market for the Renaissance. In Taiwan the system represents a second system into that market in just over a year.

The system was placed at a [inaudible] medical hospital and 900 best facility recognized as class one teaching hospital. I would like to point out that the first system we sold in Taiwan to console University Hospital has been utilized in over 240 procedures in the year demonstrating the value and versatility of the system.

The second system was sold to a new distribution partner in Hong Kong representing our entry into this long but lucrative market. Now looking at our top-line we reported 2014 second quarter revenue of $4.5 million compared to last year’s second quarter revenue of $6.2 million. Revenue from disposable service and other in the second quarter was 2.1 million this is a 17% increase over the year ago quarter demonstrating the clinical utilization continue to grow and is at an all-time high.

Despite lower system sales the steady increase in customer utilization demonstrates high satisfaction and robust clinical support by growing number of surgeons. Utilization is a leading indicator and over the long run we believe it will influence new centers to purchase the Renaissance to achieve similar clinical and economic values.

To-date Renaissance has been used in over 8,000 cases placing over 50,000 implants. Utilization rates in the U.S. reached record highs during the second quarter exceeding our expectations. The most encouraging factor is increased average per account due to a wider distribution of the procedures volume between more surgeons.

Overall we ended the quarter with 72 system installed globally including 39 U.S. systems in 36 accounts compared to 29 systems a year ago representing a 34.5% increase. We estimate the addressable market for Renaissance including surgery centers to be between 2,200 to 2,400 facilities in the U.S. This means our penetration is still less than 2%. It is sizable and untapped market opportunity and we’re having more discussions than ever before with hospitals and other institutions. We don’t often face push back of our Renaissance due to its clinical value, price or the ROI. However, we are experiencing a more complex purchase decision making process which is administrative of institution through our process of understanding the impact of the new help to operating environment in the U.S.

Hospital administrators are taking longer to approve capital purchase than in the past and are involving more influences in their decision making process. This cost rise several opportunities for us in the second quarter and I will speak more to it in a few moments.

We have several active discussions for capital purchase currently that were originally planned to be closed by the end of the second quarter to be consistent with our quality we plan to announce the full Q3 system sales following the end of this quarter. As I mentioned at the beginning of my remarks one of the second quarter transactions that didn’t get completed by June 30th has seem to be closed and the Renaissance has been installed. The other opportunities that were not completed by June 30th are actively pursued in our pipeline,

Now I would like to spend the next few minutes discussing the trends impacting the hospital industry and deal our marketing strategy. The four profit hospitals are focused on incremental volume growth and they recognize Renaissance clinical and economic value proposition.

It allows them to offer better clinical solutions we face the outcomes to the patients while allowing them to differentiate infield from other competing hospitals. The accountable care organization are increasingly important part of the U.S. market and their purchasing decisions are driven by very different set of considerations.

The focus is on achieving the triple aim, improving the patients’ experience, improving the health of populations and lowering the per capita health cost. We can help them achieve all three objectives. Mazor has a significant body of scientific literature documenting the clinical safety and reliability of the Renaissance system and we have found a bit to resonate with current and prospective ACO type customers

A recent example of few last months as international leaping on the advanced spine techniques. During the conference data was presented from retrospective five sense of study showing nice [inaudible] accuracy in more than 3,000 schools granted with Renaissance in children with colitis. These filings are consistent with previously presented and published data. This is especially impressive when you compare this accuracy rate to standout procedures not using Renaissance were up to 10% of medical schools are routinely misplaced that can be found in a published metaanalysis studies.

Given that in the new operating environment in the U.S. the institution does not get reimburse for these areas the economic benefits of Renaissance are quickly realized. As a result of the Renaissance accuracy superiority and its stability to deliver predictable results regardless of the complexity of the anatomy ophthalmology or in our logical approach we firmly believe that we will continue to penetrate this market segment successfully although the sales process at each institution may take more time to close.

So whether it’s an ACO all for profit facility Renaissance is a designed system with proven clinical results and is consistent with the triple aim. Our objective is to penetrate these markets farther eventually making Renaissance the standard of care this is our vision which is driving our strategy.

Similar to other capital equipment companies we too are experiencing a lengthier decision making process. We consistently analyze the market dynamics we are operating in both internationally and in the U.S.

In the U.S. we have determined that the three most effective tools that generate Renaissance system sales for us are direct sales activities national conferences and [inaudible] for June second half of this year we are focusing our U.S. marketing and sales budget on these three.

As to our U.S sales team we plan to expand our direct capital sales team to 20 members. The key element of our sales strategy for the second half of the year are one, increasing our interaction with hospital administration due to their increased role in the purchasing decisions as well as the timing of their decision. While the surgeon is our technology user the administration makes the final decision. Consequently we need to make sure the hospital administration is aware to their Renaissance’s ability to improve the hospital financial performance at an early stage of the deal and verify that administration is generally supportive and engaged.

We expect that meticulous internal coaching of this process by our senior sales manager and evenly myself will allow us better visibility on the decision making process at each of our targets. This revised approach won’t shorten the sales cycle but should provide us with better visibility on where we stand with our prospects and minimize the end of the quarter surprises that we have experienced this year.

Two we are continuing to focus on major metropolitan areas and we are concentrating our effort on several large geographical markets to sell Renaissance systems to feed new potential partners. We are hiring within these geographies, developing marketing initiatives to build awareness and overlap to generate interest.

Three, we are increasing the involvement of our clinical sales team in supporting the capital sales team effort this is supported by new incentives in the clinical sales team complain.

Four we are also increasing the incentives on new install for capital sales team while sales talent has never been an issue for us we feel that the revised incentive plans could drive more talent to knocking our goals.

Five, finally in the national conferences we are enhancing our presence [inaudible] and also pushing for surgeons time as a volume. This is acute over 15 times in the conference of internationally so far this year the latest being at the AAR. The next important meeting will be at Miami which focus on MIS surgery in spine

Dr. [Zarari] from Florida will give a volume presentation on a comparative data of surgery with versus without Renaissance. We are launching a prospective registry along with three prospective control clinical studies with an aim to demonstrate the alignment of the Renaissance benefit with the triple aim initiative.

These are expected to launch in half a dozen centers by the end of the year and I hope that preliminary results will be submitted during next year to leading conferences. As to the hands on that we are diligent in running these activities efficiently creating the unique and impressive experience to the visiting surgeons.

These activities are spread all over the country to facilitate surgeon participations. As these are local events we often time invite to these last in addition to recognition also the administrators to ensure engagement and support by all stakeholders. To summarize we believe that adjustment of our go-to-market strategy will increase our opportunity to generate long-term growth for the company in the U.S.

Internationally we are pleased with the growth in Asia during the second quarter and believe it demonstrates the growth potential throughout the region consistent in Taiwan, India, Australia, Singapore, Vietnam and now Hong Kong. We are growing our presence and creating interest which we’ll serve us well once we get a growth rate clearance in China and Japan.

In Europe although we didn’t sell any system this quarter our effort has created interest and we are holding meaningful discussions in Germany for creating future system sales opportunities. On the R&D side, the successful launch of the brain module further expand the Renaissance as a technology platform Renaissance standalone system. Our focus is firmly on the future and we are continually developing technology to ensure our long-term market leadership.

In summary we grow global install base in the quarter but as I’ve indicated previously our performance should be reviewed on an annual basis greater than quarter one. We have a technology that addressing needs of our target segments the full profit the ACOs and the academic centers so we are optimally provisioned. We are overall funded to maintain our growth strategy and investments in our human capital. The interest in our system continues to grow and we are committed to growing our install base and driving great utilization of the system sold expanding our network of certified customers. Put together these parameters paid more balance picture of our Q2 performance.

Now to review the financial highlights for the quarter I will turn the call to Sharon. Sharon?

Sharon Levita

Thank you Ori and hello everyone. I will review our financial results for the second quarter of 2014. Revenue for the second quarter of 2014 was $4.5 million compared to $6.2 million in the year ago quarter. Geographically revenue in the U.S. were $3.1 million or 69% of total revenue and $1.4 million or 31% of total revenue from the international market.

Capital sales revenue was $2.4 million in the second quarter of 2014 compared to $4.5 million in the year ago quarter reflecting the lower number of system sales compared to the year ago second quarter. ASP levels in the U.S. remains high as over $730,000.

Revenue from disposal kit sales service and other totaled $2.1 million in the second quarter a 17% increase compared to $1.8 million in the last year’s second quarter reflecting the increase of the install base and the number of procedures performed in the U.S. using the Renaissance systems. Revenue from disposable kits internationally are seasonal and depend on distributor stocking considerations. Gross margin for the second quarter was 79% compared to 79.7 in the second quarter of 2013 reflecting the lower sales volume. Operating expense was $7.7 million compared to $5.7 million in the second quarter a year ago. The increase in expense was due to our continued investment in sales and marketing including the additional capital sales and clinical team members as well as increasing our marketing activities mainly in the U.S.

This is consistent with our strategy to build our U.S. capital sales force to 20 by the end of the year and continued investment in increasing the awareness of the Renaissance brand so we are currently anticipating expense to be higher in the 2014 second half compared to the 2014 first half.

Similarly we are increasing expense in select out of U.S. markets to generate greater awareness and drive interest. We are also investing in R&D to maintain administrative position and stay ahead of the market.

The net loss for the quarter was $4.1 million or $0.10 per share compared to 4.4 million or $0.15 per share in the 2013 second quarter. On a non-GAAP basis the net loss for the period was $3.7 million or $0.09 per share compared to $0.5 million or $0.02 per share in the second quarter of 2013.

The weighted average common shares for the second quarter of 2013 was approximately $41.9 million shares compared $29.6 million shares in the year ago second quarter. The increasing share count is mainly as a result of the AVR offering in the fourth quarter of 2013 and the exercise of options by investor in 2013.

Cash used in operating activities in the second quarter of 2014 was $3.1 million compared to $2.2 million in the second quarter of 2013 the increase in cash used for operating activities was mainly due to the company raising the awareness of the Renaissance brand.

As a result, on June 30, 2014 cash and cash equivalents and marketable securities totaled $58.4 million reflecting the proceeds from last year’s share offering and providing the research to execute our business plans.

That concludes my remarks. Thank you again for joining the call. Operator we are now open for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question today is coming from Jeffrey Cohen from Ladenburg Thalmann. Please proceed with your question.

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Good morning how are you?

Ori Hadomi

Hi, Jeff, good morning.

Sharon Levita

Good morning Jeff.

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

So just a clarification then a couple of questions. So did you say 8,000 cases in total and 50,000 in plants?

Ori Hadomi

Yes.

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Okay. And just wondering if you could talk about a couple of items.

Ori Hadomi

Jeff that’s why we said more than 8,000 and more than 50,000.

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Got it. A couple of items if you could discuss further to tell please one is talk about some of the utilization trends that you are seeing perhaps average number of levels per case et cetera. And secondly if you could talk a little bit more about the funnel and the pipeline and how you define and how it looks as far as size versus how it’s looked over the past few quarters in particular? Thank you.

Ori Hadomi

Okay, yes Jeff. So I will begin with your question about utilization. We looked into the numbers and I mentioned in the quarter that we had a very high level of utilization and intentionally I didn’t mention exact number. We need to remember statistically when you have such a small number of systems in the U.S. 40 and what it takes sometime in the quarter to gear up everything that system to join if you have a quarterly hike and lot of new systems or less new systems it will influence significantly to the utilization.

If you remember at the beginning of the year we gave average utilization for the last year and we will continue to do it on annual base. What I can say is that we are looking very deeply into this utilization and we are looking at utilization for each system and we are trying to look at the distribution and how many surgeons.

And from our point of view what we see without giving the exact number because I think it may be misleading if I will give you exact number it will be misleading because it collides too many other things we see a positive trend, we see higher utilization with more surgeons that are involved. We see a wider number of cases and indications – so what from our perspective from the clinical team activity we see the surgeons are much more engaged in using the system in more different type of cases that’s in the U.S. As you know when you talk about the international market because it’s – we feel this indirect for the distributors we have less transparency and we know much less about each and every case because they buy the kits in and we don’t have in the room. So most of my – all of my comments before relate mainly to the U.S.

That was about the utilization Jeff before moving to the pipeline do you have any other question about the utilization?

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

No. I think I am good thank you for further clarification.

Ori Hadomi

To the pipeline again I said it in the script and I can – I support it as well as we have a pipeline but I must be I won’t be very transparent we had also very big pipeline in the previous quarter and the problem is the problem is we had nothing to do with the level of interest we have in the hospital or in the surgeons.

We have really extremely high interest both by the surgeons as well by the administrators. The challenge that we are dealing with is the process. The process was in the administration so again we have a very high pipeline we have a very high number of hospitals that are in the process.

And I think in order to meet our objectives we need to maintain this high level of pipeline for the probability that we overcome challenges processes in the number of hospitals that we need will be increased.

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Could you comment as to the pipeline and perhaps the shape of it and as far as accounts that you see in different levels how would that compare with what you have seen over the past two or three quarters.

Ori Hadomi

I can tell you that from when I am looking at our internal reports and then our sales and marketing freaking systems it looks very encouraging there is a lot of activity and I would say more than we ever had both from if you look into number [inaudible] labs the surgeon coming to these labs, the participation the interest and or course the meeting that we have with executives.

One of the most important thing that we are focusing now as I mentioned in the quite earlier is that we are now trying to engage administration at early stage of process and sometime even begin the process by just checking with the administration the support this process so if you are looking at these type of indicators I am very encouraged and I think that the message to the team and the [inaudible] in the market will give us better visibility and I hope it less and more prudently about the probability of these

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Okay. And one just very quick one what was your conference that you mentioned was upcoming for MIS?

Ori Hadomi

That will take place in Miami

Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.

Okay. Thank you.

Ori Hadomi

In September.

Operator

Thank you. Our next question today is coming from Mathew Taylor from Barclays. Please proceed with your question.

Matt Taylor – Barclays

Hi, good morning thanks for taking the question. I guess I wanted to just ask you about your process comments and your capital equipment sales comments. I think that from experience more broadly you mentioned other companies experiencing longer cycles not really a trend that’s been going on for several years. So I am trying to understand if you are talking about something new that changed in the last couple of quarters because of Obama Care or some other factor or this is really just a continuation of the longer capital cycle that we’ve seen as hospitals have been under more pressure.

Ori Hadomi

Matt the truth I can give you a very too sophisticated answer because I am not sure I have the many years perspective. What I can tell you is that from our – if I am looking at the last three years of our experience in the U.S. what we feel is that the process becomes more and more complicated from my discussions with other hospitals with other companies as well as from our discussions with surgeons we feel that hospital administrators became much more habitants to make decisions.

In some places it was even followed by changes in the old structure in order to make a decision process to some extent even more cumbersome. So I don’t if I should related to the Obama Care or to the general trend I feel that it is influenced by the Obama Care but I can’t – I didn’t do analytical analysis that will prove it.

But the trend that we see with the decision making process takes longer. I would also indicate that what we also see is that more and more of the surgeons become employed by the hospitals. And as a result of this the power of the administration become – they become much more strong and powerful in the decision making process.

And consequently they try as much as they can to leverage the purchase of capital equipments in order to engage and get coalition of surgeons and commitment of surgeons to their vision. So I believe that it’s a general trend that they’re probably influenced by several different forces.

Matt Taylor – Barclays

Okay. And then I guess can you just talk about your buying average so I am curious to understand for your current install base you just talked about the U.S. you have 39 systems are there about. How many hospitals have you approached and what percentage do you actually get to a later stage conversation and then what percentage do you convert if you could give us kind of round numbers?

Ori Hadomi

I think Jeff I want to make sure I understand correctly, you are asking the conversion from initial interaction with the hospitals to sales?

Matt Taylor – Barclays

Well I mean yeah you referenced that you have less than 2% market share. So I guess I am just curious as to what percentage of the market you think you’ve actually addressed meaning a capital sales have gone there made a presentation and they’ve had some kind of conversations with clinicians and with administrators.

Ori Hadomi

Yeah so what I can say is that we didn’t have until today a lot of really negative rejections of the system. What we get often times is a response that yes we want to explore opportunities we want to learn more, we want more persons to be involved and it’s a very, very – it becomes a long process.

In terms – in order to quantify to tell you how many – in how many hospitals our team visits and it’s simple we have today 15 – actually 13 direct capital sales team members and three directors managing them. And that’s over the building their age each of their territories. So we can calculate and can also look at our system and see how many meetings they are taking – they attending but that’s all what we do.

But I don’t informally the exact number how many hotels we visited until today. But what I can say that when we look at a data what we see that in many of these hospitals the process begin and the consolidation also takes some time.

Matt Taylor – Barclays

And may be just one final one if you talked about a number of softer factors that you are making to change the sales process and hoping that you get to more sales to result from that. I guess the consensus numbers imply a pretty big increase sequentially in sales in the third quarter and then again in the fourth quarter. Do you think that these changes are going to be enough for you to be able to get the placements and increases in the disposal revenue to be able to get some more close to this consensus numbers can you just help us think about the sequential improvement?

Ori Hadomi

As you know we didn’t give guidelines or indications for our internal forecast we are – I know what the consensus is and we are taking all the measures that we believe that needed in order to meet the investors and the shareholders expectations the truth will be in the and it will meet in two months’ time three months’ time and then we will be able to free it.

I feel as I said earlier I feel that we address some of the – we understand today world issues I hope we put the right measures in order to overcome it. I think we are doing the right things and all what we can in order to address the issue that we have to deal with. And I believe that it will help us to close the gap.

Matt Taylor – Barclays

Okay. Thanks a lot.

Ori Hadomi

Thank you, Matt.

Operator

Thank you. Our next question today is coming from Kathleen McGrath from WallachBeth Capital. Proceed with your question.

Kathleen McGrath – WallachBeth Capital LLC

Hi, thanks for taking the question. Turning back to Matt’s first question on extended approval process I am getting kind of help some of the conversations changing but does it seem like this is something that’s going to extend the entire timeline or it’s causing the administrators to perhaps push the purchasing back to the second half of the year and causing more hesitation to close in the first half of the year when they know less about where they’re going to end with the budget for the year?

Ori Hadomi

I don’t know to best answer to this question what we do see and we analyze it in few quarters that systems that were in the pipeline for one quarter moved to the next quarter and still active. So we almost don’t have a count in the pipeline from the previous quarter or even the one before that they’re all in the process So you may be right, you may be right in terms of we will see these mature. I prefer to – we have some indications about that really finding about the probability and it has a lot to do with the engagement of the administration in the process. So I am not sure it has to do with first half and second half because some of the hospitals their fiscal budget is ended in June from December and it’s still balanced. If you ask me I wouldn’t relate it to end of the year versus first half of the year.

Kathleen McGrath – WallachBeth Capital LLC

Okay. Can you give us some sort of level of confidence you have or kind of directionally if you are feeling system placements in the years are going to increase year-over-year or keeping the annual focus in said at the quarterly cadence just that well in the year with your systems going up versus flat or if we could potentially...

Ori Hadomi

I just don’t expect to show a growth that’s differently my – our planned expectations, our effort, our objective is with no help to show growth we are not a company that we don’t expect and to show a flat results so for this with no doubt for us.

Kathleen McGrath – WallachBeth Capital LLC

Alright thanks for answering the questions. I’ll get back in queue.

Ori Hadomi

Thank you very much.

Operator

Thank you. Our next question today is coming from Mike Matson from Needham & Company. Please proceed with your question.

Mike Matson – Needham & Co.

Hi, thanks for taking my question I guess first I was wondering just if you could I think you mentioned the number of capital sales people that you have I think you said it was 13 reps and three managers is that right and the 13 number doesn’t include the three managers correct? And can you give the number of clinical reps you have as well?

Ori Hadomi

Sure so first of all you got it right we have altogether right now 16 team members as a capital sales team 13 of them are area sales managers and three are in management provision. On top of this we have 37 clinical sales reps who support the account, the training and all the clinical sales. And we plan to grow our sales team – capital sales team and to hire three more.

Mike Matson – Needham & Co.

Okay, all right. And then just given the surgeon training and the cadaver lab et cetera can you – I know you probably not going to give us any specific numbers but just qualitatively is the number of surgeons that you are training up significantly year-over-year?

Ori Hadomi

Yes the number of surgeons that tend to lab the number of surgeons per lab and the number of labs that we are running significantly including this year as well as the budgets associated with that. I can also say that all the systems that we filled the surgeons either went through a lab either been excluded or being trained in one of these labs, the process of the labs are definitely a very effective tool in order to get the surgeons exposed and brought in their system, the technology.

Mike Matson – Needham & Co.

And I guess the conversion rates from those labs I mean do you feel like that’s been steady?

Ori Hadomi

The conversion is very high but – and I don’t see any major change there it was again when you talk about conversion you need to – you should remember the difference between the clinical volume by the surgeon and later on the decision by the administrator.

So in order to convert to get the surgeon to support and to open the doors of the administration and come to the administration say I want it, I need it you have the conversion very high. However, this still often times insufficient in order to get administration to make a decision.

Mike Matson – Needham & Co.

Right. And then I guess you mentioned IMS but I was wondering I think you had said in the past that you expect that some presentations at NAS in the fall so I was wondering if you could may be provide an update on that and how many presentations you expect and what are the topics if you are able to disclose at this time?

Ori Hadomi

Right yes we do expect to have more than two presentations too enough. Some of these by American surgeons and some by European surgeons and obviously we will focus on their experience with Renaissance. It will be the first time ever that we will present 14 presentations at the North American Client Society Meeting.

Mike Matson – Needham & Co.

Alright thanks. And just one more just in Asia can you just remind us which countries are selling into Asia and I don’t think you are in Japan correct me if I am wrong so can you give us an update if you’re not Japan what your plans are there?

Ori Hadomi

Sure the countries where we are selling out the systems and we have an active system are Vietnam, Taiwan, India, Singapore and Hong Kong. And we also have a system in Australia and we have activities there. The two main countries that we are referring now to regulatory clearance are China and Japan. Japan it’s a very long process and I don’t expect this to – I don’t expect the clearance this year or I would even say before the end of next year as to China I said we passed that I expect if all goes well later this year I hope before the end of the year but we have really no control on that to get a clearance there. We did almost we needed and we’re basically waiting to hear from the authorities and it may take some time.

Mike Matson – Needham & Co.

Alright that’s I have thanks a lot.

Ori Hadomi

Thank you.

Operator

(Operator Instructions). Our next question is coming from Jose Haresco from JMP Securities. Please proceed with your question.

Jose Haresco – JMP Securities, LLC

Hi, good morning can you hear me okay?

Ori Hadomi

Yes Jose great.

Jose Haresco – JMP Securities, LLC

Okay, great thank you for taking the question. Could you at what extent your capital sales team that’s from a cost perspective how should we think about the incremental cost over the next 12 months expand that theme and what would you be expanding it?

Ori Hadomi

I have to understand the question if you could change something and ask it again?

Jose Haresco – JMP Securities, LLC

Sure over what time expanding your capital sales team?

Sharon Levita

We are planning to increase by three more capital sales team one was is in the process now recruiting and two more towards the end of the year.

Jose Haresco – JMP Securities, LLC

Okay. Thank you. And how will that impact your SG&A between now and the end of the year?

Sharon Levita

As I mentioned we are continuing to invest more in sales and marketing as part of it is increasing the headcount. And all traditional activities and attending conferences and so on. So you will see some additional growth in Q3 and Q4 of this year.

Jose Haresco – JMP Securities, LLC

Okay. Thank you. Last question is instead of focusing on capital could we discuss your efforts to increase utilization should we is it fair to expect increase in the number of training workshops to expose to increase the number of surgeons and are you also contemplating an expansion or your clinical support teams over the next year?

Ori Hadomi

So the answer or your all of the questions is yes. We do – what we see today is an increase in utilization with the increase in number of procedures in the indications in the number of surgeons generally I can see that we see increased number of sales that trained and into hospitals. And we plan to continue to this effort, we are putting a lot of effort and as I mentioned in the last quarter conference call we actually changed we would put the actual focus that’s to manage the clinical team that’s the focus because we really believe that one of the most important key factor for us is utilization and customer experience and the customer satisfaction. So that’s where we are putting a lot of effort and we will continue to put effort there.

Jose Haresco – JMP Securities, LLC

Okay. Thank you very much.

Ori Hadomi

You’re welcome.

Operator

Thank you. (Operator Instructions) I would now like to turn the call over to Ori for further closing comments.

Ori Hadomi

Thank you everyone. My final comments to end this call would be that we’re eager and committed to sell more and I am still confident that we will sell more. Our customers are happy our team is motivated more than ever and our technology is a market leader and support to triple aim.

We are working on growing pipeline of deals and I believe we will demonstrative a significant growth in the coming years as we become the standard of care in our target markets. Thank you very much for your time and for your trust and we’ll follow up with all of you.

Operator

Thank you that just concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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Source: Mazor Robotics' (MZOR) CEO Ori Hadomi on Q2 2014 Results - Earnings Call Transcript
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