Stereotaxis, Inc. (STXS) Q1 2015 Earnings Report, Transcript and Summary

Good day and welcome to the Stereotaxis’ First Quarter 2015 Financial Results Conference Call. Please note, today’s conference is being recorded. At this time, I would like to turn the conference over to our host Jim Byers of the MKR Group. Please go ahead, sir.

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 first quarter ended on March 31, 2015. Before we start, we’d 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 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 expressed terms as a result of negotiations or by project changes or delays. With that, I’d like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

Thanks, Jim and welcome everyone to our first quarter 2015 earnings call. With me today is our CFO, Marty Stammer. Following our prepared remarks, we’ll open up the call to questions and answers. We’re off to a good start in 2015 achieving significant year-over-year gains in revenue for the first quarter. Total revenue grew 14% from the first quarter of last year and system revenue increased 112% year-over-year on sales of two Niobe systems, two Vdrive systems and two Odyssey systems. We saw continued strong recurring revenue in the quarter from service contracts and disposables and we achieved our second highest procedure volume during the quarter in nearly two years. At the same time, we reduced operating loss by 37% from a year ago quarter. We’re especially encouraged by our continued momentum in our newest market Japan where we shipped our second Niobe system during the first quarter. We have now shipped Niobe systems to Japan in consecutive quarters which reinforces our long standing conviction about the significance of this new market for Stereotaxis. We expect to complete installation of our first Japan site in the second quarter with first procedures performed in Q3. We believe these hospitals will help lead the collection of compulsory clinical data to support increased reimbursement and provide baselines specific to the Japan patient population. Our marketing efforts in Asia have been part of a global collaboration, not only with our exceptional distributors in Japan who’ve continued to engage high priority institutions but also among our user community. In the first quarter, multiple groups of Japanese physicians visited our U.S. hospital sites and our St. Louis headquarters for case observations and in depth Niobe system implementation discussions. Also during the quarter, one of our most experienced physicians in China received advanced training and best practices…

Thanks, Bill and good afternoon everyone. Revenue in the first quarter was $9.5 million, up 14% from $8.4 million in the year ago quarter and down 2% on a sequential basis. System revenue of $2.8 million was an increase of 112% year-over-year and an 11% decline on a sequential basis. In the first quarter, we recognize revenue of $2 million on two Niobe systems, $300,000 on two Vdrive systems and $500,000 in Odyssey solution sales. During the quarter, we generated new capital orders of $2.2 million including one Niobe system, two Vdrive system orders and seven Odyssey solution orders. At quarter end, our active backlog was $4.8 million. Recurring revenue in the quarter was $6.7 million compared to $7 million in the prior year quarter and $6.6 million in the fourth quarter. The first quarter of 2015 was our second highest procedure volume quarter in nearly two years with total procedures growing 1% year-over-year, despite a 2% sequential decline. Gross margin in the first quarter 2015 was $6.9 million or 72.4% of revenue compared to $6.7 million or 80.6% of revenue in the year ago first quarter and $7.5 million or 76.6% of revenue in the fourth quarter. Operating expenses in the first quarter were $8.3 million, a 7% improvement compared to $9 million in the year ago period and the 16% increase from the $7.2 million in the fourth quarter. The sequential increase in operating expenses was a result of several incremental items, including a variety of variable compensation components. Operating loss was $1.4 million in the 2015 first quarter compared to a loss of $2.2 million in the 2014 first quarter, a 37% reduction, and an operating income of $300,000 in the fourth quarter. Interest expense was $800,000 in all three quarters related to the Healthcare Royalty Partners…

Thanks, Marty. In closing, we were happy to welcome Duane DeSisto to our Board of Directors this past week. A medical device industry veteran with more than 25 years, Duane recently retired as President and CEO of Insulet Corporation where he led the development and commercialization of the company’s signature product the Omnipod Insulin Management System. Under Duane’s direction, Insulet grew from an early stage company in 2001 to a segment leader with the market cap of more than $2 billion. His instinctive skill and driving commercial adoption of the innovative medical therapies is a welcome addition to our company leadership. Now, we’ll open up the call to your questions.

Thank you so much, sir. [Operator Instructions] And we’ll take our first question from Denise O'Hara with Wells Fargo.

Well I was just wondering now that the company appears to reached a more stable operating state, have you contemplated developing any strategic partnerships around your technology platform and, by that I mean are there any natural market adjacencies that your platform technologies going to extend to? And then if I may as a follow-up, could you comment on whether or not or any thoughts you might have around the evolution of your current hardware suite, is there any thoughts or any discussion with potential partners to try to get the next generation of the Niobe suite down to a smaller footprint within the cath lab? Thanks.

I think it's a good question and it raises well certainly at least a couple of interesting strategic issues and options for us. By way of background I first say that remember our technology is a fundamentally different approach to controlling interventional devices than conventional mechanical approaches. We act directly on the distal or the working tip of the device using magnetic fields versus the proximal control schemes that use and concatenation of mechanical linkages to affect their action. We’re different at the architectural level simply put, but even as we’re fundamentally distinct, I think we’re also potentially quite broadly applicable useful in a wide array of possible types of interventions. For example you may know Stereotaxis first clinical experience as a company was in the setting of interventional neuroradiology which although very promising was set aside to allow for a focus on cardiac electrophysiology for many and for the most part obvious reasons at the time. But given the resources and the domain expertise were required to enter a new field of medicine. I do believe that a strategic partnership with an established entity in a new field of application would in fact be the way for us to proceed, if and when we move in that direction. So that’s the first comment that I would make. Secondly, in the cardiac electrophysiology interventional laboratory, we have a number of as you put them adjacent technologies with which we must and do harmonize. As these technologies variously advance there certainly can be opportunities for us to evolve our platform to fully leverage these advances and perhaps offer substantially more capable and highly evolve solutions in the process. And I think there is still quite a bit more we can do to improve our product embodiment and I believe that working…

What would be and I know this is probably getting maybe over too far ahead for the purpose of this call. Briefly could you touch on one or two of these sort of platform or market adjacencies that this technology might be able to address?

So in the cath lab there are handful of sort of major modalities and technologies that exist. I am speaking about the hardware platform side of the equation now when I recognize that for instance the fluoroscopy system that is probably from an engineering standpoint the most engineering intensive harmonization that we need to accomplish is very much one of the central actors in the solution set that comprise the devices that collectively treat the patient. So, we have existing longstanding partnership with Siemens and with Phillips in that regard. There are other -- there are a couple other major vendors of high quality solutions in that specific segment of the market as well. And one thing I’d observed is that it may be possible through even tighter engineering collaborations than we have used in past product manifestations to even further evolve and improve the delivery of this type of diagnostic and therapeutic combination to the market for these products. Another example of technology that plays a very substantial role in the cath lab is advanced mapping electrophysiological anatomical mapping solutions. Our partnership there has been with Biosense Webster who is a leading vendor of those technologies through a product architecture known as CARTO. And again this is a technology with which we in order to be fully effective need to harmonize. These technologies are aside from the disposable devices that are consumed in the context of these procedures which for us involve both magnetic and non-magnetically enabled devices depending upon whether they’re under the control of Niobe or the Vdrive accessory platform. But sufficed to say that there are all of those central acting technologies, but in the future there yet be still more as other modalities compete for potential participation in these procedural settings. And so, we have the -- I would say as a former scientist the great good fortune of being in the very middle of a very active high intensity area of technology evolution and development in the cath lab. I think that makes for some pretty interesting opportunities it’s very gratifying and many levels to be able to participate in the application of advanced science translated through appropriate technologies to yield these sorts of solutions in the cath lab. So, I’m citing a number of things here any one of which or a combination of which can be I think important collaborative opportunities for us to collectively further evolve what we bring to the market. It is an important question that’s probably all I want to say about it at this point in time Denise, but it’s a direction which I think is inevitable when one thinks about the way that these technologies must evolve and where the expertise to accomplish that is likely to come from.

Thank you [Operator Instructions]. And we’ll take our next question from [Gary Gus], Private Investor.

Bill first I wanted to thank you for your explanation of the alternate avenues possibly available in the future in cardiology and neuroradiology, very well stated and also want to spend my greetings to you from a fellow MIT alumina.

Well, I’ll look you from the infinite connection later on Gary but thank you, I appreciate your acknowledging that.

Marty, my question is to you regarding the explanation of the increase in operating expenses, do you see these as a one-time event, will they revert, will they be maintained that close to Q1 levels or will they revert to a number of closer to Q4 levels which produced operational profitability?

At this point I would anticipate that they would stay more in the Q1 kind of OpEx range at least for the next few quarters. As I mentioned, there was one major driver that really took us from the Q4 numbers up to the Q1, but it was really a number of small adjustments, payroll taxes, accrued vacation, a bunch of small items, but nothing that really change the business. However we do see these types of expenses typically occurring at least in beginning half of the year. So, I would expect it to stay more similar to the range that you're seeing here in Q1, at least for the next several quarters.

Recognized that that has an impact on profitability and requires additional revenue to get there, so hopefully we’ll see the revenue increase match the operating expense increase?

Absolutely, I mean our hope is -- we feel like our -- the position where we have OpEx right now is well balanced between using our resources responsibly, but still continuing to invest in the long-term success of the business. We understand that was adding OpEx on does improve profitability, so we will continue to keep eye on that absolutely.

And how does your cash -- given the negative cash flow -- the increase in negative cash flow in Q1 compared to Q4, how do you foresee your needs for cash being met over the upcoming year?

So in general when I look at our cash numbers, they should some close to -- they should come close to our operating loss plus the interest expense that we have. As you see in Q1 that was a little bit higher than that from a cash front perspective, primarily due to working capital adjustments. If you look at 2014, we’ve earned about $10 million in cash, so we’re burning at about $2.5 million a quarter. If you assume steady state cash burn given that we have $4.5 million of cash on the balance sheet at 331 and an unused line of credit with [SBB], we do have several quarters of cash runway without raising any additional cash. I think we’ll continue to be kind of opportunistic on that front and if we saw good opportunity, we would consider raising cash. But it's nice to be in a spot where we don’t really have to do that at least for some quarters.

Thank you and that will conclude today’s question-and-answer session. At this time, I would like to turn the conference back over to management for any additional or closing remarks.

Thank you, operator and thanks to each of you participating on the call today for your continued support. We’re looking forward to speaking with you again in the next quarter and sharing news of further progress and wish all of you a good afternoon and good evening. Thank you.