Stereotaxis, Inc. (NASDAQ:STXS)
Q2 2016 Earnings Conference Call
August 9, 2016 17:00 ET
Jim Byers - Investor Relations
Bill Mills - Chairman and Chief Executive Officer
Marty Stammer - Chief Financial Officer
Good day and welcome to the Stereotaxis Second Quarter 2016 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jim Byers of MKR Group. Please go ahead, sir.
Thank you, operator and good afternoon everyone. Thank you for joining us today for the Stereotaxis’ conference call and webcast to review financial results for its 2016 second quarter ended on June 30, 2016.
Before we get started, we would like to remind you that during the course of this conference call, the company might make projections and 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 reflects 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 at 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. And in addition, these orders and commitments maybe revised, modified or canceled either by their expressed terms as a result of negotiations or by project changes or delays.
With that said, I would now like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.
Thanks, Jim. Good afternoon, everyone and thank you for joining us today for a review of second quarter and first half 2016 results. With me is our CFO, Marty Stammer. Following our prepared remarks, we will open up the call to questions.
Our progress during the second quarter includes further clinical adoption in our installed base driven by continued growth in ventricular tachycardia, or VT procedures. We also completed multiple new Niobe system installations, including our second installed site in Japan. And we continued to advance our platform with product enhancements that optimize therapy delivery and improve patient lives, in this case, with the introduction last month of our second generation V-CAS Deflect system in Europe.
We remain focused on leveraging our unique underlying strengths in VT and advancing our position in the worldwide VT markets. This past quarter represents the 10th consecutive quarter we have achieved year-over-year growth in VT procedures and the fourth quarter in a row we have generated year-over-year growth greater than 20%. As I have noted before, with the number of VT procedures performed worldwide each year estimated at more than 60,000 and growing at a rate of 10% or better, 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 converted to remote magnetic navigation. With our increased VT volume and consistently strong service contract revenue, we have maintained healthy recurring revenue, which comprises a solid, high margin segment of our business.
Our magnetic platform has architectural advantages in the treatment of the most complex arrhythmias compared to traditional approaches. Supported by a substantial and growing body of clinical studies by highly respective institutions in VT therapies, our clinical teams can speak authoritatively about the Niobe systems ability to outperform traditional therapies in safety, efficacy and procedure efficiency when used for VT and other ablations in hard-to-reach anatomically challenging areas of the heart. The level of confidence in our solution by key opinion leaders has increased the comfort level of practitioners to tackle harder cases with the same confidence as more routine cases.
Expert Niobe system users provide the best reference to physicians on how remote magnetic navigation can significantly improve their procedural proficiency and results in all four chambers of the heart with improved patient outcomes. One of these experts reached an impressive procedure milestone in the quarter. Dr. Margot Vloka of Saint Alphonsus Health System in Idaho completed her 500th cardiac ablation procedure using the Niobe ES system. Having experience with the Niobe system while at The Wisconsin Heart Hospital, Dr. Vloka was a local proponent of the technology when arriving at Saint Alphonsus in late 20154. After completing our best practices program for the latest generation platform, she quickly adopted the Niobe ES system as part of her daily clinical routine and now completes multiple complex procedures each day. With the Niobe system, Dr. Vloka says her peace of mind that she is providing – she has peace of mind that she is providing the safest approach to cardiac ablation for her patients and she has been able to create more effective lesions with shorter procedure times than traditional manual and mechanical therapies.
During the quarter, we completed three Niobe ES installations, including our second installed site in Japan. Kakegawa Central City Hospital is a new state-of-the-art facility located approximately 300 miles from Tokyo that combines the former Kakegawa East City and West City hospitals and serves a pre-fixture of 5.5 million people. In June, the hospital held an opening ceremony for local residents, media and the healthcare community offering tourists of the new EP Lab and demonstrations of the Niobe system. Physicians at Kakegawa completed 13 ablation procedures using the Niobe system in the first week and a half after clinical startup on July 20. It’s clear that we have brought great excitement with the introduction of remote magnetic navigation technology to the practice of EP in Japan and we are focused on leveraging our increasing brand awareness to engage more providers and further expand in this key market.
Also in June, our first Niobe site in the province of Québec completed initial ablation cases. Montreal Heart Institute is an ultra-specialized hospital and recognized cardiology leader not only locally, but around the world with EP as one of their four major areas of intervention. Procuring both the Niobe and Vdrive systems through a grant by the Canada Foundation of Innovation, MHI expects to reinforce its leadership in arrhythmic disorders through this advanced therapeutic approach for the residents of Québec.
The University of Chicago Medicine is creating what they call a high-tech arrhythmia technology suite using the Niobe ES system. Dr. Roderick Tung, who helped establish Ronald Reagan UCLA Medical Center as the largest the VT ablation program on the West Coast brought his passion for the Niobe system to The University of Chicago Medicine after relocating there earlier this year. The hospital, one of the busiest university-based heart rhythm programs in the Chicago area, was quickly sold on the benefits of revitalizing its EP Lab with the latest generation Niobe system and began treating patients with the Niobe ES system on August 1.
For Texas Children’s Hospital, highly specialized ablation procedures are the everyday with safety being a profoundly important priority for vulnerable pediatric patients. This summer, the Houston-based provider became the first pediatric hospital in the U.S. to offer the Niobe ES system extolling the significantly reduced fluoroscopy times, improved procedure times and more effective lesions that can be accomplished in the small structurally challenging anatomical setting of a child’s heart.
Safety supersedes all other performance metrics for cardiac ablation and our system continues to excel in safety in study after study. This June, Paracelsus Medical University in Nuremberg, Germany announced the results of a retrospective study, which showed significantly reduced radiation exposure for patients undergoing catheter ablation for persistent atrial fibrillation with the Niobe system. The study, which received first place honors for best poster presentation at the European Cardiac Arrhythmia Society Congress in Paris analyzed fluoroscopy time during cardiac ablation using the Niobe system for 169 patients with symptomatic persistent AF. Total fluoroscopy time was 5 to 9 minutes compared with 14 to 60 minutes reported for traditional manual ablation procedures and the mean effective radiation dose was reduced by 96%.
Along with highlighting the inherent capabilities of our platform, we also continue to introduce product advancements that evolve our navigation platform and achieve higher levels of automation for greater physician efficiencies and optimal patient outcomes. Last month, we announced the release of our second generation V-CAS Deflect system in Europe. Part of our Vdrive Robotic Navigation portfolio, the V-CAS Deflect system incorporates and remotely guides a proprietary robotic deflectable sheath during an ablation using the Niobe system. The deflectable sheath can be an essential tool in an ablation procedure as it helps support, stabilize and maneuver the magnetic ablation catheter. After gathering and processing feedback from first generation V-CAS Deflect users, we have enhanced this new version to improve performance in small atria, enhance visualization on 3D mapping systems and improve torque transfer for better navigation.
While we rollout the V-CAS Deflect system to European sites, we continue to work on exciting innovations in tissue contact confirmation and lesion assessment and prediction technologies, which are designed to further raise physician confidence in lesion creation. We look forward to sharing more about these advancements in the near future.
Before I offer some concluding remarks, I will turn the call over to Marty to provide additional details on our second quarter and six months financial results. Marty?
Thanks Bill and good afternoon everyone. Revenue in the second quarter was $7.9 million, a decrease of 19% from $9.7 million in the year ago quarter and down 9% sequentially from $8.6 million in the first quarter. System revenue was $900,000, down 70% from $3.1 million in the second quarter of 2015 and down 55% sequentially from $2.1 million in the first quarter. In the second quarter, we recognized revenue of $300,000 on Niobe ES installations, $500,000 in Odyssey solution sales and $100,000 in Vdrive system installs.
During the quarter, we generated new capital orders of $800,000 compared to $1.6 million in new capital orders in the second quarter of 2015 and no new capital orders in the first quarter. At quarter end, our backlog was $3.5 million. Recurring revenue in the quarter was $6.9 million compared to $6.6 million, both in the prior year quarter and the first quarter. Total procedures were relatively unchanged from the prior year with VT procedures increasing 24% year-over-year.
Gross margin in the second quarter 2016 was $6.8 million or 86.1% of revenue compared to $6.7 million or 69.5% of revenue in the year ago second quarter and $6.5 million or 74.8% of revenue in the first quarter. Second quarter gross margin was the result of a higher mix of recurring revenue as well as strong capital and recurring margins. Operating expenses were $8.4 million, unchanged from the year ago quarter and up sequentially from $8 million in the first quarter.
Operating loss was $1.6 million in the 2016 second quarter, a 5% improvement from $1.7 million in the prior year second quarter and a 10% increase from $1.5 million in the first quarter. Interest expense was $800,000 in all three quarters. Net loss for the second quarter of 2016 was $2.3 million or $0.11 per share compared to a net loss of $1.5 million or $0.07 per share reported for the second quarter of 2015. Excluding mark to market warrant revaluation, we would have reported net loss of $2.5 million or $0.11 per share for the 2016 second quarter compared to a net loss of $2.5 million or $0.12 per share for the 2015 second quarter.
The weighted average diluted shares outstanding for the second quarters of 2016 and 2015 totaled $21.8 million and $21 million, respectively. For the first six months of 2016, total revenue was $16.5 million, down 14% compared to $19.1 million in the first six months of 2015. System revenue was $3 million or 49% decreased from $5.9 million in the first half of last year. Recurring revenue was $13.5 million compared to $13.3 million in the prior year period. Total procedures were unchanged year-over-year with VT procedures up 26%. Gross margin for the first half of 2016 was $13.2 million or 80.2% of revenue compared to $13.6 million or 71% of revenue in the first half of 2015.
Operating expenses improved 2% year-over-year totaling $16.4 million for the first six months of 2016 compared to $16.8 million for the same period in 2015. Operating loss was $3.1 million in the first half of 2016, representing our lowest first half operating loss in company history. Net loss was $4.6 million or $0.21 per share in the first six months of 2016 compared to a net loss of $4.7 million or $0.22 per share in the first six months of 2015. Excluding mark to market warrant revaluation, the first half 2016 net loss would have been $4.8 million or $0.22 per share and the first half 2015 net loss would have been $4.8 million or $0.23 per share.
Cash burn was $4.6 million compared to $4.3 million in the first six months of 2015. At June 30, we had cash and cash equivalents of $3.9 million and unused borrowing capacity of $1 million on our SVB revolver for total liquidity of $4.9 million. Total debt was $21.1 million consisting of $3 million borrowed against our revolver in the remaining related to HealthCare Royalty Partners’ long-term debt.
I will now hand the call back to Bill.
Thanks Marty. Headed into the second half of 2016, we remain intent on building a continually growing and increasingly compelling body of clinical evidence along with strong clinical support to further drive VT volume growth in existing sites as well as capital selling success with high volume VT centers. To that end, we are progressing our magnetic VT study, our first prospective multi-center randomized superiority study comparing the long-term patient outcomes, realized with a Niobe system in treating VT compared to manual approaches. We are in a unique position not only in the VT market, but with practitioners looking to transform their EP services through innovative, automated solutions that enable them to concentrate on therapy planning and management, rather than the mechanics and execution of the procedure and to do so with complete confidence in procedure safety, accuracy and efficacy. We look forward to sharing our progress with you in the coming quarters.
And with that, we will open up the call to your questions. Operator?
Okay. Operator, thank you and I would like to thank each of you for your support. We appreciate you being with us today and we look forward to speaking with you again in the next quarter. And wish you a good afternoon.
And ladies and gentlemen, this does conclude today’s conference. Thank you, everyone, for your participation. You may now disconnect.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!