Stereotaxis' (STXS) CEO Bill Mills on Q4 2015 Results - Earnings Call Transcript

| About: Stereotaxis, Inc. (STXS)

Stereotaxis, Inc. (NASDAQ:STXS)

Q4 2015 Earnings Conference Call

February 22, 2016 4:30 p.m. ET

Executives

Jim Byers - IR, MKR Group

Bill Mills - Chairman and CEO

Marty Stammer - CFO

Analysts

Operator

Good day and welcome to the Stereotaxis 2015 Fourth Quarter and Full Year Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Jim Byers of MKR Group. Please go ahead, sir.

Jim Byers

Thank you, operator and good afternoon everyone. Thank you for joining us this afternoon for the Stereotaxis conference call and webcast to review financial results for its 2015 fourth quarter and full year ended on December 31, 2015.

Before we get started, we'd like to remind you that during the course of this conference call, the company might make projections or other forward-looking statements regarding future events or the future financial performance of the company. These include without limitation, statements regarding future operating results, growth opportunities and other statements that reflect Stereotaxis' plans, prospects, expectations, strategies, intentions and beliefs.

These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company's business and that qualify the forward-looking statements made on this call, we refer you to the company's periodic and other public filings filed with the SEC, including its most recent Forms 10-Q and 10-K and the Form 8-K filed today. The company's projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements.

In addition, regarding orders and backlog, there can be no assurance that the company will recognize revenue related to its purchase orders and other commitments in any particular period or at all, because some of these purchase orders and other commitments are subject to contingencies that are outside of the company's control. In addition, these orders and commitments may be revised, modified or cancelled, either by their express terms as a result of negotiations or by project changes or delays.

And now with that said, I would like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

Bill Mills

Thanks, Jim. Good afternoon everyone and thank you for joining us today to review our fourth quarter and full year 2015 results. With me today is our CFO, Marty Stammer. Following our prepared remarks, we'll open up the call to questions.

Throughout 2015 we were focused on several key objectives, including driving revenue growth through commercial success, increasing our operational efficiencies to improve our working capital possession, expanding our body of clinical evidence, particularly in the setting of ventricular tachycardia or VT, optimizing our industry partnerships and continuing to advance our technologies toward full automation. We achieved good results in each of these areas and ended the year on a high note.

For the 2015 full year, our total revenue reached $37.7 million, an 8% increase over the prior year despite currency headwinds. System sales increased 36% year-over-year on revenue from seven new Niobe ES systems compared to three in 2014. This increase was due in large part to our sales teams’ and distribution partners’ targeted marketing efforts and their focus on articulating the clinical value of our technology.

We also concluded 2015 with strong results, generating new capital orders of $5.1 million in the fourth quarter, a 76% increase over the same period last year. This included two new Niobe ES system orders in Japan where we see continued progress and momentum.

In 2015, we shipped two Niobe systems to Japan and our first installed site contributed 84 cases to an Asia-Pacific region that achieved a 71% increase in procedures over 2014.

From a cash perspective, we had our first quarter ever of free cash flow in the fourth quarter, generating $1.6 million which helped drive a 71% year-over-year reduction in cash burn for the full year. We continue to be mindful of managing every aspect of the business responsibly for each of our stakeholders while executing on our growth initiatives.

As we've noted, our magnetic navigation platform has architectural advantages in the treatment of the most complex arrhythmias compared to traditional approaches. As we have increasingly leveraged our unique underlying strengths in VT, this procedure type has emerged as our growth leader, increasing 28% year-over-year in the fourth quarter and 15% for the full year. With an estimated 60,000 VT procedures performed worldwide each year and growing at a rate of more than 10%, we believe the VT market currently represents a nearly $100 million market opportunity for us on an annual basis, most of which is yet to be explored.

Further supporting our strengths in VT, in November, we announced the results of an independent multicenter study on the procedural benefits and outcomes of patients undergoing radiofrequency ablation therapy for VT using our Niobe system compared to manual catheter techniques.

The retrospective study involved 218 consecutive patients with ischemic cardiomyopathy and scar related VT in multiple centers, 80 patients treated manually and 138 treated with the Niobe system. Most notably, the findings revealed a statistically significant greater 15-month success rate among the Niobe patient group, 81.2% compared to 69% for the manual catheter group. Dr. Andrea Natale, Executive Director of the Texas Cardiac Arrhythmia Institute, a study participant, attributed these results to the Niobe system's exceptional mapping capabilities, catheter tip control and reduced operator fatigue which enabled physicians to accurately pinpoint, access and thoroughly ablate the affected scar area. These study findings are the latest in a growing body of clinical evidence on the higher acute success, better long-term outcomes and improved safety of our combination of technologies in VT cases.

In January, we were excited to announce the commencement of our first prospective multicenter randomized clinical study of VT which we believe will definitively establish our superiority in long-term patient outcomes and further support our classification as the standard of care. The study will be conducted by researchers from 10 US and European sites considered to be VT centers of excellence and will involve 382 patients. Dr. Natale will lead efforts as global principal investigator with Dr. Dr. Tamas Szili-Torok from Erasmus Medical Center and Dr. Roderick Tung from the University of Chicago Medicine serving as co-principal investigators.

The study will track recurrence rates of patients at 3, 6, 9 and 12 month follow-up. We expect patient enrollment to begin within the first quarter. This extensive trial is an important step in capitalizing on what has become a significant part of our overall growth plans.

At the same time we continue to emphasize the superior safety profile and establish long-term benefits of magnetic ablation with atrial fibrillation or AF, a market currently being impacted by simple yet unproven new technologies. As our platform continues to evolve and provide additional value to physicians compared to manual techniques, we should see our growth potential in this area more fully unfold. More immediately, our superiority with VT is a position we can capitalize on today.

Along with highlighting the inherent capabilities of our platform, we continue to introduce product advancements that evolve our navigation platform and achieve higher levels of automation for greater physician efficiencies and optimal patient outcomes. In 2015, we introduced several enhancements to our system user interface, including respiratory compensation which provides a precise representation of lesion sets even in the presence of cardiac and respiratory motion, as well as new additions to the Vdrive portfolio.

After performing the first procedure using Niobe at UMC New Orleans, a new facility conceptualized and funded by the state of Louisiana following Hurricane Katrina, Dr. Jameel Ahmed pointed specifically to the respiratory compensation feature as a differentiator. In a patient with Wolff-Parkinson-White syndrome, a form of VT, Dr. Ahmed was able to fully ablate the affected tissue within 30 seconds and without complications. As we continue to further enhance physician capabilities and patient outcomes through new automations and lesion centric solutions, we believe we can replicate the same level of distinction we are seeing in VT within the setting of AF as well as simple procedures.

We also continue efforts to align our platform with cutting-edge magnetically compatible imaging systems and therapeutic devices. In January, we extended our cooperation agreement with Philips Healthcare to develop a new interface between our Niobe system and Philips’ latest cardiovascular X-ray system which is widely used for EP and other cardiac interventions.

We've partnered with Philips for more than a decade in delivering solutions that enable effective procedures while optimizing clinician comfort and efficiency in the EP lab. The new interface expected to be available by midyear will be a powerful combination of products for our customers.

Now, I'd like to turn over the call to Marty to provide more details on our fourth-quarter and full-year financial results.

Marty Stammer

Thanks, Bill and good afternoon everyone.

Revenue in the fourth quarter was $9.2 million, down 6% from $9.8 million in the year ago quarter and down slightly from $9.3 million on a sequential basis. Systems revenue of $2.4 million was a decrease of 24% year-over-year but an increase of 5% on a sequential basis. In the fourth quarter we recognized revenue of $1.4 million on one Niobe ES system and two Niobe ES upgrades, $200,000 on three Vdrive systems and $800,000 in Odyssey solution sales.

During the quarter we generated new capital orders of $5.1 million. At quarter end, our backlog was $6 million. Recurring revenue in the quarter was $6.8 million compared to $6.6 million in the prior year quarter and $7 million in the third quarter.

Procedures declined 5% year-over-year partially offset by a 28% increase in VT procedures. Gross margin in the fourth quarter of 2015 was $6.8 million or 73.7% of revenue compared to $7.5 million or 76.6% of revenue in the year ago fourth quarter, and $6.8 million or 73.6% of revenue in the third quarter.

Operating expenses were $8.2 million compared to $7.2 million in the year ago quarter and $7.7 million in the third quarter, partially due to $600,000 of one-time non-cash charges related to intangible assets and stock-based compensation. Operating loss was $1.4 million in the 2015 fourth-quarter compared to an operating income of $300,000 in the 2014 fourth-quarter and an operating loss of $900,000 in the third quarter.

Interest expense was $800,000 in all four quarters of 2015 related to HealthCare Royalty Partners debt. Net loss for the fourth quarter of 2015 was $1.7 million or $0.08 per share compared to net income of $900,000 or $0.04 per share reported for the fourth-quarter of 2014.

The weighted average diluted shares outstanding for the fourth quarters of 2015 and 2014, totaled 21.5 million and 20.6 million respectively. Excluding mark-to-market warrant revaluation, our net loss would have been $2.2 million or $0.10 per share in the fourth quarter of 2015, and $500,000 or $0.03 per share in the 2014 fourth-quarter. In the fourth quarter we had free cash flow of $1.6 million compared to cash burn of $1.4 million in the year ago quarter and less than $100,000 in the third quarter.

For the full year 2015 total revenue was $37.7 million, up 8% compared to $35 million in 2014. Systems revenue improved 36% to $10.6 million from $7.8 million in the prior year period. Recurring revenue was $27 million compared to $27.2 million in the prior year period. Procedures were down 3% from the same period last year, however, VT procedures increased by 15%.

Gross margin for the full-year 2015 was $27.2 million or 72.3% of revenue compared to $26.8 million or 76.5% of revenue in 2014. Operating expenses were $32.6 million in 2015 compared to $32.2 million in 2014. Operating loss was $5.4 million in both years.

Net loss was $7.4 million or $0.35 per share in 2015, compared to $5.2 million or $0.26 per share for 2014. Excluding mark-to-market warrant revaluation the 2015 net loss would have been $8.7 million or $0.41 per share, and the net loss for 2014 would have been $8.7 million or $0.44 per share. Cash burn was $2.7 million, a 71% improvement from $9.2 million in 2014.

At December 31, we had cash and cash equivalents of $5.6 million compared to $3.6 million on September 30 with unused borrowing capacity of $5.2 million and nothing drawn against our SVB revolver. During the fourth quarter, we recognized gross proceeds of approximately $300,000 from a registered offering of subscription warrants conducted in the third quarter. Our total debt on December 31 was $18.4 million, all related to Healthcare Royalty Partners’ long-term debt.

Lastly, on the investor relations front, later this week, Bill and I will be participating in BTIG's 2016 MedTech conference. The conference takes place this Thursday, February 25 in Snowbird, Utah and consists of a full day of one-on-one investor meetings. We hope to see some of you there.

I will now hand the call back to Bill.

Bill Mills

Thanks, Marty. We have before us an opportunity that is uniquely ours to transform the delivery of VT ablation for improved outcomes and safety for all patients. We’ve entered 2016 committed to growing this segment of our business as part of our overall growth strategy.

Looking beyond this initiative and more broadly, we’re truly excited to bring the advantages of high levels of automation to all complex catheter-based interventions for procedures in cardiac electrophysiology. This is our vision and we can't wait to fully deploy it for the benefit of the many patients who put their trust in us.

With that, we will open up the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And at this time, I will turn the call back to management for any additional or closing remarks.

Bill Mills

Okay, operator, thank you and thanks to each of you joining us today for your support. We’re looking forward to speaking with you again in the next quarter and of course sharing further news of progress and developments of Stereotaxis. Thank you for joining us.

Operator

That does conclude today’s conference. Thank you for your participation.

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