Stereotaxis Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 7 speakers on the call.

Operator

Morning. Thank you for joining us for Stereotaxis' Second 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 ks or 10 Q.

Operator

We assume no duty to update these statements. Call. At this time, all participants have been placed on a listen only mode. The floor will be opened for questions and comments following the presentation. Call.

Operator

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.

Speaker 1

Questions. Thank you, operator, and good morning, everyone.

Speaker 2

We are

Speaker 1

pleased to return to robust double digit growth in the 2nd quarter with a 28 percent year over year increase in revenue. System revenue for the quarter reflects partial revenue recognition on 2 Genesis systems, call, both of which are being installed this summer at hospitals in the U. S. And Europe. During the Q2, we received orders for are 2 Genesis systems, one from a new greenfield hospital in Europe and the second as an upgrade of an AOVI system to Genesis in the U.

Speaker 1

S. Call. The net effect of the orders we received and the revenue recognized led to a slight increase in system backlog, call, which as of quarter end stands at $16,000,000 We expect similar or increased levels of system revenue in the upcoming quarters call as our backlog is converted into revenue. We also continue to see a healthy pipeline of replacement cycle presentation are expected to continue to contribute to backlog call provide confidence in sustained year over year revenue growth. Genesis System sales remain the primary driver of our growth call as we work towards advancing a robust innovation strategy towards commercialization.

Speaker 1

Our recurring revenue in the quarter period was impacted by the loss of royalty payments that we no longer receive from Johnson and Johnson as well as J and J catheter production shortages, calls, which pressured procedure volumes. Each individually presented a high single digit headwind to recurring revenue. Call. The J and J catheter production shortages, which pressured procedure volumes throughout the first half of this year, proceedings seem to have been resolved in July, and we expect procedures to rebound to more normal levels in the Q3. On our last call, we hinted at a special announcement we had planned for the Heart Rhythm Society Conference.

Speaker 1

Presentation. A highlight of the last quarter was the announcement at that conference of a global strategic collaboration with Abbott period to integrate Abbott's latest Nsight X mapping system with Stereotaxis' robots. The integration of our technologies makes the use of Abbott's leading mapping system an attractive option for the community of robotic electrophysiologists participants who have long desired increased choice in mapping. It enhances the overall physician experience, streamlines procedural workflow and supports the improved treatment of patients who have complex arrhythmias. From a strategic perspective, provide a broad range of diagnostic and therapeutic technologies.

Speaker 1

It will also significantly support the launch and more rapid adoption of our proprietary presentation. There was significant excitement at HRS around our integration announcement. Call. We had an opportunity to educate the broader Abbott Commercial leadership team on our technology and Abbott dedicated a space in their booth to showcase our collaboration. Period.

Speaker 1

Abbott Software is currently released in Europe and last month we celebrated the 1st integrated Nsight robotic procedures presentation are at Erasmus Medical Center in the Netherlands and Marinehaus St. Elizabeth Hospital in Germany. These sites continue to do integrated procedures and other sites are moving through the adoption process. We expect integration to be available in the U. S.

Speaker 1

Late this year presentation as Abbott's software and connectivity cable are approved in the U. S. The main drive for significant joint adoption of our technologies call will take place concurrent with the Magic launch, but we anticipate a continued shift and diversification towards Abbott's N Sight System until then. We had expected to receive CE Mark and launch the magic catheter in Europe this summer. Presentation.

Speaker 1

While our regulatory submission was in line with multiple historical precedents and direct verbal feedback we have received from the European notified body, presentation. The notified body's interpretation of the new MDR regulations led them to request first in human data prior to approval. Call. We were surprised by the decision, but have responded rapidly in designing a clinical protocol and putting together all the clinical trial documentation period needed for submission to hospital ethics committees and relevant national authorities. Acute data in a couple dozen patients from one single center should be sufficient.

Speaker 1

To reduce dependency or risk of delays at any individual site, call. We have engaged and begun submitting documentation to multiple sites, several of which have first in human trial experience. We expect to start patient enrollment in the trial in the Q4 and complete the acute data collection on the couple dozen patients rapidly, call allowing a restart of the MAGIC CE Mark review early next year. The availability of this clinical data will ultimately support a more robust launch for MAGIC in Europe as we plan to use the trial to gain experience, presentation will be available on the call. In the U.

Speaker 1

S, we are progressing with the submission of our IDE application. Call. In parallel, we are exploring with the FDA the possibility of an alternative regulatory route, which would accelerate our path

Speaker 2

call will be available to bring Magic to U. S.

Speaker 1

Physicians and patients. Beyond Magic, we continue to meaningfully advance are multi pronged robust innovation strategy. These innovation efforts include a smaller self shielding robot presentation guide catheters that expand the benefits of our robots into new endovascular indications a digital surgery hardware and software offering call may bring broad operating room connectivity and a full electrophysiology product ecosystem being built in collaboration with MicroPorts for the Chinese market. Development and refinement of the smaller self shielding robot has gone well and is near completion. Commercial launch of the robot is predicated, however, on either the magic catheter or our magnetic guide wire achieving regulatory clearance.

Speaker 1

Call. We therefore want to balance pursuing regulatory approval for the robot early enough such that we de risk regulatory approval questions and ensure it is available when those interventional devices come to market, but not too early such that we lose the ability to create an exciting launch for the robot. We plan to now submit the robot for 510 clearance and CE mark at year end at a similar time to when we expect to submit comes from the robotic magnetic guide wires. That should allow for approval and launch of our new robot with a guide wire for vascular indications in 20 presentation. Availability of the new robot paired with Magic will occur as soon as Magic gains its first regulatory approval, call, which we believe should be possible in mid-twenty 24.

Speaker 1

In China, MicroPort is making significant progress call in bringing together our joint product ecosystem and preparing for commercial launch. MicroPort continues to expect presentation are currently in early 2024. Mapping integration with our Columbus mapping system is complete and waiting for availability of a magnetic ablation catheter, which will be submitted for regulatory approval before year end. Period. The Asia Pacific Heart Rhythm Society Conference is taking place this year in early September in Hong Kong.

Speaker 1

Period. Stereotaxis Technology will be prominently showcased at the conference. The Society For Cardiac Robotic Navigation participants received an extensive session at the conference during which our robotic technology will be showcased in 3 live streamed cases, including long distance call are tele robotic procedures performed from the podium to hospitals 100 and 1000 of miles away. During the conference, call. MicroPort will also showcase for the first time its new magnetic ablation catheter being navigated by Genesis integrated with its mapping system.

Speaker 1

This activity and the growing excitement we see in the market bodes well for a strong launch next year. I recognize our path hasn't been easy call and that progress on our strategic innovation efforts has been slower than originally anticipated. There have been various may be related to external factors serving as headwinds, including changing regulatory goalposts, supply chain difficulties and personnel challenges across the industry that impact contract manufacturing partners. Internally, we have also been doing things that are new to us as an organization, period such as focusing on disposable interventional devices. We are advancing multiple very significant and innovative projects calls are with lean teams.

Speaker 1

I take responsibility for providing optimistic expectations. Call. That said, my excitement for what we are building has not waned. I see ourselves as being on the cusp of a strategic transformation call as we advance a new foundational product ecosystem that makes robotics broadly accessible and impactful across endovascular surgery. Call.

Speaker 1

We have clear line of sight to a near term future with strategic independence, an attractive revenue model, provide broad robot accessibility and multi indication opportunity. 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 and A. Kim?

Speaker 3

Thank you, David, and good morning, everyone. Call. Revenue for the Q2 of 2023 totaled $7,900,000 growth of 28% from $6,200,000 in the prior year's Q2. Call. This growth was primarily due to higher revenue recognition on Genesis Robotic System sales, partially offset by discontinued royalties from Johnson and Johnson.

Speaker 3

System revenue of $3,300,000 reflects revenue recognition on the delivery of 2 Genesis systems. Call. Recurring revenue for the quarter of $4,600,000 was predominantly impacted by both the absence of the J and J royalty and J and J catheter production shortages, calls, which pressured procedure volume. The J and J catheter shortage has been largely resolved, and we expect procedures to rebound to normal levels in the 3rd quarter. Call.

Speaker 3

Gross margin for the Q2 of 2023 was 53% of revenue with recurring revenue gross margin of period is 79% and system gross margin of 18%. Recurring revenue gross margin remains consistent with recent quarters and system gross margin continues to reflect significant allocation of overhead expenses over low manufacturing volume. Call. Operating expenses in the quarter of $9,500,000 include $2,600,000 in non cash stock compensation expense. Call.

Speaker 3

Excluding non cash stock compensation expense, adjusted operating expenses were $6,900,000 compared to the prior year's adjusted operating expenses of $7,200,000 We continue to spend significant amounts on our research and development efforts and are working in a focused fashion to reduce pertaining expenses, where doing so, won't compete our progress. Operating loss and net loss in the 2nd quarter were $5,300,000 $5,000,000 period compared to approximately $5,200,000 for both in the previous year. Adjusted operating loss and net loss for the 2nd quarter, period, excluding non cash stock compensation expense, were $2,700,000 $2,400,000 Negative free cash flow for the Q2 was 2,900,000 period in the second half of this year, particularly as we slow investment in inventory. We expect to end the year with between are $22,000,000 $24,000,000 in cash with no debt. I will now hand the call back to David.

Speaker 1

Thank you, Kim. We are aware of the importance of maintaining financial strength and ensuring our existing balance sheet is are capable of advancing our innovations to market and funding their commercialization. We've invested significantly over the last several quarters calls in our new headquarters and on inventory for both Genesis and the next generation robot. Those investments are largely behind us. Call.

Speaker 1

We're balancing an overall posture of financial discipline with continued investment in the key drivers of technological progress and revenue growth. Presentation. Our backlog and continued capital sales activity give us confidence in sustained momentum and in ending the year with double digit annual revenue growth presentation are in a strong cash position. As our innovation pipeline comes to market, we expect that growth to accelerate from those launches. We look forward to now taking your questions.

Speaker 1

Operator, can you please open the line to Q and A?

Speaker 3

Thank you.

Operator

Thank you. Our first question comes from Frank Pekkanen from Lake Street Capital Markets. Please go ahead. Your line is open.

Speaker 4

Call. Great. Thanks for taking the questions. Wanted to start with 1 on second half placement expectations. I think, David, you mentioned you expect a similar level of system revenues for Q2 and Q3 going forward.

Speaker 4

I was hoping you could speak a little bit more around that. What kind of visibility do you have into that? Is this planned? Is there any construction that could hold it up? I'm just trying to understand where we should be setting the models for system revenues in the second half.

Speaker 1

Hey, Frank. Good morning, sir. So we've kind of gotten to a pace where I think we feel very comfortable with 2 systems presentation are being recorded as revenue as a type of lower bound of what we would expect in any given quarter. It is very hard still to estimate in any quarter exactly how many will go through. It's There is a lot outside of our control on that and obviously the volatility between 2 or 3 or 4 makes a big difference in the numbers, even though it's kind of individual units that are kind of driving all of that.

Speaker 1

And so we think that kind of modeling 2 as a lower bound is the safe thing and we will have quarters where we're Obviously above that, but that's kind of how we're looking at things right now.

Speaker 4

Okay. That's helpful. You can help with quantification on how impactful this could be, maybe how much share Abbott has in the market, how frequently Abbott integration was brought up throughout the adoption process for new users and any other color you could provide to really exemplify the Abbott partnership.

Speaker 1

Sure. So the Abbott partnership is was a highly strategic One for us, and we're delighted that we were able to announce it. It has been many years in the making. Generally, if you look at the electrophysiology field, from a mapping system perspective, it is a duopoly between There are other mapping systems obviously out there. We obviously have integration collaboration with Acuitas.

Speaker 1

Boston Scientific has a mapping system, Medtronic is working on a mapping system. Other companies internationally like MicroPorts have mapping systems. But in the U. S. And Europe still, Johnson and Johnson and Abbott have more or less a duopoly on the majority of the market share.

Speaker 1

And historically, Stereotaxis has only been integrated with Johnson and Johnson's mapping system, and the lack of integration with Abbott period was viewed as limiting for many of the physicians who would have preferred to use Abbott's mapping system. This has obviously clinical implications because when you provide more choice to physicians, you allow them to use the robot with less process of a less of a kind of a choice where they have to give up other things that they've been looking for. And We are also integrated with the latest version of Abbott Software, so that allows, obviously, the latest versions of mapping functionality with the robotic system, which is a positive. From a strategic perspective, this will be highly beneficial for kind of support Magic's adoption in a significant fashion. And from a purely quantitative financial perspective right now, I'd say that There is a psychological benefit to the announcement that we had that I think supports questions.

Speaker 1

Hospitals that are thinking about adopting robotics. There are also some physicians that, as integration is available, will prefer to shift into that mapping environment and will start to do more procedures in that environment. I would not think that there is a period. Dramatic shift where that changes adoption dramatically in a way that you see it in the numbers. Overall, in the short term, I think that you will see most of the impact there in the adoption of the magic catheter, which will be accelerated significantly by this integration.

Speaker 4

Perfect. That's good color. I'll stop there. Thanks for taking the questions.

Speaker 1

Thanks a lot, Frank.

Operator

Our next question comes from Adam Maeder from Piper Sandler. Please go ahead. Your line is open.

Speaker 5

Hi, David. Hi, Cam. Good morning and thank you for taking the questions. Wanted to start on the magic catheter and just I guess try and better understand timelines in Europe. So it sounds like you're going to start the enrollment in the human study in Q4 review process from the regulatory body Restart early next year.

Speaker 5

Is mid year or Q3 'twenty four just reasonable a reasonable assumption for approval and launch, so that's question 1. And then question 2 would be just maybe you can flesh out the alternative regulatory route that you referenced for Magic when we're talking about the U. S. Pathway. And then I had one follow-up.

Speaker 5

Thanks.

Speaker 1

Okay. Hi, Adam. Good morning, sir. So in Europe, as we described in the prepared remarks, we scrambled. There was a lot of work to be done after we learned after we received that feedback from the notified body in Europe.

Speaker 1

There was a lot of work to be done to organize Clinical trial protocol to make sure that clinical trial protocol was both very fitting with what the notified body would presentation. Want to see in terms of data and very reasonable in terms of what physicians could enroll and could be done kind of in an efficient fashion at a hospital setting. There were many documentations that are needed to gain ethics committee and national approvals that you need just support those processes. And so kind of the entire team here worked in a very nice fashion questions to kind of organize ourselves and be able to submit documentation to hospitals in Europe. We started engaging while we are Confident that data from a single site would be sufficient for the notified body, and We didn't want to be dependent on one site.

Speaker 1

Obviously, this is new to us to run preapproval trial and so kind of we didn't want to be dependent on any individual site and so we engaged questions. With many of our users, we got very enthusiastic feedback from many of our users in Europe who were excited to do a trial like this. Unfortunately, several of them have experience doing first in human studies in cardiac ablation. And so we have started submitting documentation at sites in Europe. From what we've heard and it's fairly consistent at several of these centers, a review process is oftentimes call.

Speaker 1

Couple of months, 3 months kind of in that type of ballpark and enrollment in this trial should be very, very rapid. It's all chomerarrhythmias, and we're talking about acute data. So that is something that should enroll in this time span of definitely less than a month to do full enrollment and to have data. And so we think that kind of having that data in the 4th quarter receiving approval from the competent authorities in individual countries in Europe from the ethics committees of hospitals presentation is very reasonable in the Q4. Enrolling patients and having the acute data from them is also reasonable in that same quarter.

Speaker 1

And then we would obviously very quickly submit that data to the notified body so that we can restart the review of our CE Mark. Given how extensive the CE Mark review was with all the rounds of questions until they got to the point of telling us that they believe clinical data is necessary, I believe that, that review process should be relatively shorter and streamlined. We went through rounds of questions before, but obviously, that time line of the regulatory review is outside of our control. So I think that summertime Next year sounds very reasonable. It's obviously though outside of our control, so we can't say for certain.

Speaker 1

Hopefully, we can even have earlier than that. Does that kind of answer the European path for MagicWell?

Speaker 5

It does, David. Thank you. That's great color and would love additional thoughts on the path forward for Magic in the U. S. You, I think refer to an alternative regulatory pathway.

Speaker 5

So we'd love to hear a little bit more about that. And then I had one follow-up. Thanks.

Speaker 1

So the traditional path in the U. S. Is that filing for an IDE trial and running a pivotal U. S. Study and submission of a PMA application to FDA.

Speaker 1

We have done most of the work to be ready for that and to do that submissions, given what we are doing in Europe and Given some of the discussions we've had, we believe there might be a reasonable likelihood that we gain an alternative path, which will be are attractive. It is obviously very important for us and for the physician community that relies on robotics presentation for the patients they treat, that MAGIC is available for U. S. Physicians and patients as early as possible. And so presentation.

Speaker 1

We are cognizant of that importance. We're grateful that we've had the opportunity to have meaningful discussions with FDA. Presentation. And at this point, there's not much more that I should say, but I believe that at the next quarterly earnings call, I'll definitely or I should be able to provide much clearer guidance on our platform in the U. S.

Speaker 5

Okay, great. Totally understand. And then for the follow-up, purposes. Wanted to pivot over to the mobile robotic system. And I guess the genesis of the question is just trying to better understand the strategy and timing here.

Speaker 5

I think I heard you say the plan now is to submit for 510 and CE Mark at year end, so a little bit of a push out there. I guess my question is why not submit earlier for approval, get across the regulatory goal line, but just not launch it until you have approval for the magic catheter in hand. So hopefully that makes sense and would love any color there. Thank you.

Speaker 1

No pun intended on the genesis of the question, comment there, right? So We feel good with how we've been developing and the testing process for the next generation system. There is a balancing act where as we pursue approval for a system, oftentimes post approval, you continue to do some improvements, some modifications in a robotic system. It's different than something like an interventional device. Pull the lever on pursuing regulatory approval versus continuing to do that refinement and then pulling the regulatory lever.

Speaker 1

Our team has been laser focused on the magic regulatory process these last several weeks, and there isn't provide value in gaining approval for the robot prior to either Magic or Guidewire being on the market. So I think we're taking a very just a balanced approach where we definitely want to gain, like you say, approval for the robot prior to the interventional devices being on the market in order to derisk that dependency and to make sure it is available. On the other hand, We feel very confident with the regulatory path that exists for the robot, given that we did Genesis very recently and given that we've had discussions with the regulators in both regions recently on that regulatory path again. And so we feel confident in the regulatory path there. Call.

Speaker 1

And we want to balance also not getting approval for a robot 6, 9 months before we actually can do anything with it And then continuing to make iterative improvements in that meantime. And so that's really kind of the calculus going on. And I think that kind of this is a reasonable balance and we'll be flexible if we sense that we have acceleration anywhere else in the program then we'll pull the trigger quicker.

Speaker 5

That's helpful color. Thank you.

Speaker 1

Thank you.

Operator

Our next question comes from Alex Nowak from for Craig Hallum Capital. Please go ahead. Your line is open.

Speaker 2

Hey, great. Good morning, everyone. David, I want to push a little bit more around the alternative pass. And I know you don't want to reveal too much until you have the game plan I'm just hearing you correctly. It sounds like it could potentially use the European data in the PMA submission and maybe could bypass some of And the workflow that is needed for a PMA, if you just were solely doing in the U.

Speaker 2

S?

Speaker 1

Hi, Alex. It is Obviously, an important topic and an important question. I don't want to go into great detail of that now. I don't think it's are appropriate to do so. I think that it is obviously the magic catheter is highly important Product in terms of ensuring that Physicians that use our technology and the patients that they treat have access to robotics and the latest generation of robotics period in kind of the best fashion possible.

Speaker 1

I'm grateful that kind of That regulators understand that importance, and we are being are creative in how we're thinking about collecting data to ensure that Magic is clearly kind of an efficacious and safe device. And so we've been fortunate to have the opportunity to explore various ideas in a collaborative fashion, And I will know more in the coming weeks. And so I believe by the next call, we'll be in a position call to be able to share much more. Again, kind of our baseline path, which we are advancing and committed to is submitting that e application period in the near term, but there may be opportunities for an improved time line there that would provide

Speaker 2

quarter sounds very interesting. Maybe on utilization, if you back out some of the one time items here with regards to, I guess maybe not one time, but the royalty, the catheter shortages, how is underlying usage and utilization with Niobe and Genesis going This quarter.

Speaker 1

So obviously, from a recurring revenue perspective, you see the hit because of the loss of the royalty. That has nothing to do with utilization. That's purely kind of a dollar hit per procedure. On the utilization side, we were hamstrung by the shortages of J and J catheters, which period did impact volumes in the Q2. They also did impact in the Q1 before that.

Speaker 1

And overall, High single digit impact to recurring revenue, the shortage of catheters and the impact on utilization, purposes. I'd say we expect given what we've seen in the supply and given the commentary we've received, it seems like the shortages on catheter are call are largely over, and so we'd expect to bounce back to more normal volumes in the Q3. And overall, we still see utilization at purposes. Genesys accounts being higher than Niobe accounts, and so we see kind of the benefit of new technology and what new technology brings to the marketplace, and so that has been kind of good to see.

Speaker 2

Okay, excellent. And then maybe just lastly, just how is the overall hospital

Speaker 1

environment in recent months? It might seem like

Speaker 2

based on the commentary, things are starting to period. It might seem like based on the commentary things are starting to break free a little bit, new placements and new orders are starting to

Speaker 1

Yes. So I'd say it's mix where again, I think I've made the comment sometimes in the past We are still a relatively smaller player in the field, and so it's hard to take macro trends from our experience. Generally, what you described is true. We do send multiple hospitals that are engaging with us. There are definitely hospitals that are moving forward on projects that are kind of that are able to move forward.

Speaker 1

We see kind of tenders in Europe that take place. And so it kind of that overall feels good. There are definitely though counterexamples where there are hospitals that are very financially pressured and that are being very tight on any spendings or any projects. And so we see the spectrum of experiences across our hospital customers. But I think at least for us, There is a maturization of our commercial team and their ability to engage with sites.

Speaker 1

And questions. Many things snowball gradually in kind of in this world. And so I think some of the efforts that we've done over the last couple of years process to improve and to engage with sites starts to have more of an impact and you start to see more repeatability in the commercial teams' capabilities. And so it's kind of it's still not completely open and easy environment. I still think the macro period is a world more of headwinds than tailwinds, but I think kind of we are able to overall make progress despite those headwinds.

Speaker 2

That's good to hear. Well, I appreciate the update. Thank you.

Speaker 1

Thank you very much.

Operator

Our next question comes from Josh Jennings from T. B. Cowen. Please go ahead. Your line is open.

Speaker 6

Hi. Good morning, David and Kim. Thanks. Wanted to just get a refresher on the status of the U. S.

Speaker 6

And Europe plan on what would you need to see to change that strategy would just be expansion of the sales funnel and And I have one follow-up on China.

Speaker 1

Hey, Josh. Good morning. Please. So I think we've talked a little bit about the European sales team and our strategy there in the past. And overall, we view our commercial teams presentation in the U.

Speaker 1

S, Europe and Asia as kind of the right size. We think we have kind of a good team with Smart people and capable people. We have gradually questions. And but that's been overall very gradual. And I would say that we are waiting for we are confident that the magic call.

Speaker 1

Catheter can be launched very successfully at our existing sites in Europe with our team and that, that can be a successful launch. Call. We also think that we have the bandwidth, obviously, to launch the new robot, and that, to some extent, just makes the work that our existing team has been doing on the capital side much easier. And so I think that our technologies, as we bring them to market, can be launched very successfully with the existing teams that we have. Now the opportunity To grow a team when you have an improved revenue model and a significantly higher disposable revenue per procedure period is attractive and significant.

Speaker 1

And so we do plan to channel much of that incremental gross profit that we would receive from the magic catheter from the growth in revenue from these new technologies back into our team, back into the company. Call. And I'd expect that as we're doing the magic launch, we will move much more towards a model like other companies in the field have, where you have for each 3 or 4 hospitals and that is commercial disadvantage versus competition. And when we have Kind of a more similar model to our competition. And so that's kind of something that we would be doing as we do the magic launch.

Speaker 1

I I think we can do that in a financially sustainable fashion, being self funded by the launch of that new technology. And so that's something we'll do gradually kind of probably over the 1st year, 1st presentation. 18 months or so over the launch.

Speaker 6

Understood. And I just wanted to Just better understand the dynamics in China in front of Mike Reports kind of finalizing the build out of the purposes. Ecosystem and incorporating robotic magnetic navigation technology. Is there a holding period here in China just for I think you've described a kind of sales funnel pipeline of potential customers and dozen plus range in China. But Do we need to see Genesis approval before those that pipeline converts to contracts?

Speaker 6

And And just maybe just to help us think through the next 12 months in front of that full build out. And then just a follow-up to that, is there any other countries in This HRS, I think Asia Pac meeting coming up in September in Hong Kong and the other opportunities you see Japan or other Asia Pac countries that are intriguing for Stereotaxis. Thank you.

Speaker 1

Thanks, Josh. So yes, the APHRS, Asia Pacific HRS Conference that's coming up in the beginning of September, I was very pleasantly surprised by questions. How good of a program was arranged by the Society For Cardiac Robotic Navigation in collaboration with AP to HRS. They are showcasing Some amazing procedures and some amazing capabilities of our technology. So I think presentation that is reflective of the type of pre commercialization work in some ways that is taking place there to build up interest and to grow kind of the visibility of our technology there.

Speaker 1

Overall, kind of There is some opportunity potentially to commercialize new robots prior to that ecosystem coming into play presentation are next year, but I'd say that, that is not the biggest focus. The real focus is how to make sure that as you have this full ecosystem available. You can have a very successful launch and you can, together in partnership with MicroPorts, take multiple percentage points of market share in a country like China, which is a significant existing market. And so That is really kind of the primary focus, the strategic focus and kind of the big wave that's out there. I think kind of as we said before, right, we expect Genesis approval in the earlier parts of next year Given the submission that had taken place already at the end of last year and then some of the additional requests for information that took place in the first half of this year, And MicroPort will be submitting, it's kind of the next generation ablation catheter that works combined comes from the line of Peter's Columbus mapping system and our robot later this year.

Speaker 1

And so kind of overall, we're looking at We had kind of a nice launch probably around this time next year. And kind of I think that we do have Other accounts in the Asia Pacific region outside of China that still do procedures that are great users of robotics At APHRS, we will be engaging with those accounts, and we'll be engaging with potential accounts in other countries in the Asia Pacific region. But I'd say that kind of from a focus perspective, we see very clear line of sight to building a substantial business with MicroPor in China. And so that really is kind of the biggest strategic focus presentation kind of and that's where I'd expect to see the biggest kind of change to our overall corporate trajectory from there.

Speaker 6

Appreciate that. Thanks, David.

Speaker 1

Thank you.

Operator

Call. Our next question comes from Neil Chatterjee from B. Riley. Please go ahead. Your line is open.

Speaker 2

Good morning, and thanks for taking our questions.

Speaker 1

Questions. Maybe I'll just ask, I think a lot of my questions have

Speaker 2

been answered. But maybe just on the I think last call you kind of talked about some of the preclinical studies with PFA generators. Just curious if you have any update there and or on any maybe development for MAGIC in

Speaker 1

Sure. Hi, Neil. So I think we've also discussed this somewhat in the past, as you say, We have performed animal studies using the MAGIC catheter variants of it questions are answered with PFA generators and have got kind of nice results from that. Mechanistically, there's a lot of rationale purposes to using the benefits of robotic magnetic navigation with pulse field energy. Pulse field energy Can be very efficacious, but it does require being in contact during that short burst of therapy period with the tissue and manual catheters are less stable on the beating heart.

Speaker 1

And so kind of there is a rationale to Why we provide an improved lesion when we combine with PSA. Overall, kind of we've been taking approach. There are multiple now many, many companies with PFA generators and PFA Technology, we have been engaging and doing some technology work with various of them. And I think kind of we're going to see how best to create from those collaborations and some of the technology work that we've been doing, process, clinical versus human work and with an actual viable regulatory path to bringing a PSA product to market. I I think kind of developing of the magic catheter has given us a foundation from which we can build on because purposes.

Speaker 1

Finally, for the first time, we own our own ablation catheter, and so that kind of has been very helpful, both Being able to use a variant of that with PFA and in also facilitating other companies to be able to create variants of their own catheters questions that can be spewed in the robotic environment in collaboration with us. And so again, we're kind of in the process of working with comes from different parties on how that could kind of come to market.

Speaker 2

Great. Thanks. Maybe just a follow-up just on OpEx. I guess, with the kind of the ongoing work you have and kind of the planned work, How should we think about kind of

Speaker 1

R and D expense kind of

Speaker 2

in the back half and into 2024? And then maybe additionally just on the pipeline, any update on Your kind of work and development in OR connectivity.

Speaker 1

Sure. So In terms of R and D expense, I'd expect that to be more or less flat. There are kind of gives and takes there. So kind of some of the projects presentation have definitely gone through the majority of their spending and now it's kind of more cleanup internal work with very little external spending, very little purchasing that needs to take place for them to come to completion. Others like running clinical studies kind of obviously ramp up the expenses.

Speaker 1

And so I think kind of when I look at the gives and takes of the different projects, you should expect overall spending to be more or less flat, kind of an IDE study would be more expensive. And so Depending on how things go there, next year, we could see an increase in R and D expense. But I'd say in the back half This year, I'd expect it more or less equal to the first half of this year. And kind of I think generally from an OpEx perspective, presentation. We are at a relatively good level.

Speaker 1

We are making some focused reductions in expenses where that doesn't impact call. The progress of our technology or our commercial capability, we also from just OpEx and kind of GAAP call. Earnings is not the same as cash flow, and we have still seen over the last several quarters period that our cash flow has lagged behind what you would expect it to be given the investment in inventory, both for Genesis And for the next generation robot, we have bought the vast majority of the components and supplies there calls for over a handful of Genesis systems and a handful of the next generation robots. And so A lot of that spending has been a drain on cash resources and kind of was done to reduce the risk of delays and reduce the risk of the supply chain and kind of we will continue to spend money on both of those products, but I think it will be at kind of a much lower level and given the types of revenue and cash inflows that we're getting from the Genesis system, They should be below that before below the cash inflow. So I'd say that kind of obviously our guidance of $22,000,000 to $24,000,000 of cash at the end of this year, That is kind of representative of the fact that cash flow is going to be much better as we don't have to continue to invest as much in that type of inventory.

Speaker 1

What was your second question? Sorry, I forgot it, Neil.

Speaker 2

Yes. No worries. Just on the pipeline, just any update on kind of the OR connectivity, I guess, with like Synchrony and Sync?

Speaker 1

Okay. So yes, so the sync software for connectivity, we are just at the period, which is the first time we're going to be doing an internal limited market release as a full kind of a full product In a production environment, downloaded from the app stores, both iOS and Android, We'll be doing it with our internal team and then with a few of our existing customers to start making sure That it is working well, that there are no bugs, that kind of that all the features are kind of as desired by questions are customers that can serve well both for the peer to peer connection between physicians and also for our team as we do remote supportive procedures and remote both technical and clinical support. And so we're going to be running that out Probably starting already in a month from now or so. And then as kind of process, as kind of we go through that LMR process, then we'll decide on when to do an actual kind of public formal launch. Hopefully, that limited market release, Faith, can take will be a few months.

Speaker 1

We've already started working with hospitals. It's there are approval process. We have a lot of experience with cybersecurity and working with hospitals, IT groups Through the due diligence required for connected technologies in the hospital environment, probably about 80% of our hospitals have connectivity with us through VPNs currently. That's what allows us to do remote support and allows us to gain real time data from the robots. This solution is a much more elegant way and scalable way of doing connectivity with individual sites, And we have a lot of experience with cybersecurity, and so we designed and think in a way that is, I think, very good and well are suited for the hospital environment, but you still need to go through a new review process and kind of all that, that entails.

Speaker 1

We've actually started that process with initial hospitals. Those will probably take a few months. So we're kind of I think kind of we've started some of that limited market release work. And as we go through, are able to put SYNC in a few hospitals, are Great.

Speaker 2

Thanks for that. That's it for me.

Speaker 1

Okay. Thank you, Neil.

Operator

We have no further questions in queue. I would like to turn the call back over to David Fischel for closing remarks.

Speaker 1

Okay. Thank you very much for all your questions. We appreciate your continued support and look forward to working hard on your behalf in the coming months

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Key Takeaways

  • Robust double-digit growth: Q2 2023 revenue rose 28% year-over-year to $7.9 million, driven by Genesis robotic system sales, with a $16 million backlog and expectations of similar or higher system revenues in H2.
  • Abbott collaboration: Announced global strategic partnership to integrate Abbott’s Nsight X mapping system with Stereotaxis robots, already in use at European centers, with U.S. availability expected late 2023 to streamline workflow and bolster Magic catheter adoption.
  • Magic catheter update: CE Mark approval was delayed by MDR requests for first-in-human data; a multi-site clinical trial will start in Q4 2023 aiming to restart CE review in early 2024 for a mid-2024 European launch, while pursuing an IDE and alternative FDA pathway in the U.S.
  • Next-generation robot: The smaller self-shielding robot and magnetic guidewire are near completion, with 510(k) and CE submissions planned by year-end for a synchronized launch with Magic in mid-2024, and a Chinese ecosystem rollout with MicroPort expected in early 2024.
  • Strong financial foundation: Q2 gross margin was 53%, adjusted operating expenses fell to $6.9 million excluding stock compensation, Q2 net loss was $5.3 million, and Stereotaxis expects to end 2023 with $22–24 million in cash with no debt to fund innovation.
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Earnings Conference Call
Stereotaxis Q2 2023
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