TransEnterix Inc Q2 Earnings Show Reasons for Optimism, but the Clock Is Ticking

Image source: Transenterix. 

Robotic surgery upstart TransEnterix (ASXC -2.81%) reported results from its second quarter before the markets opened on Aug. 5th. The company's shares have been obliterated in 2016 on the news that the FDA refused to give the nod to its innovative SurgiBot system, stating it was "not substantially equivalent" to an existing devices. That fact caused the company to put the SurgiBot system on the back burner and instead throw all of its might behind its unproven AFL-X system.

Let's take a closer look at TransEnterix's second-quarter results to see what kind of financial shape the company is in -- and to dig for clues about its future plans.

TransEnterix Q2: The raw numbers

Data source: Transenterix.

TransEnterix's headline numbers look dreadful this quarter, but that's mostly odue to the company's decision to record a number of one-time charges. Management took a restructuring charge of $5.6 million during the period -- the majority of which was non-cash -- and it also recorded a $61.8 million non-cash charge related to goodwill impairment. If you adjust for those events, the company's net loss would have been $13.3 million. That's still up 46% from the $9.1 million it recorded in the year-ago quarter, but it's not nearly as bad as the headline numbers appear. For comparison, Wall Street was expecting a quarterly net loss of $0.13 per share, so this result actually represents a beat.

TransEnterix stated it ended the quarter with about $64.6 million in cash on its books, and management stated it burned through another $3.6 million in July. In total, the company believes its remaining cash balance should be enough to fund operations through the third quarter of 2017.

Financials aside, the big news to come out of the company recently was that it sold its first ALF-X system to Humanitas Hospital, which is a teaching hospital located in Milan, Italy. The sale occurred at the end of July, which is why the company still didn't have any revenue booked for the second quarter.

Selling a single system might not seem like a big deal, but I'd argue that it is. The AFL-X System has only become a major focus of TransEnterix's management team since the FDA handed down its SurgiBot ruling. Thus, seeing the company sell an ALF-X this quickly is an encouraging sign.

That's especially true if TransEnterix managed to steal a sale away from robotic surgery kingpin Intuitive Surgical (ISRG -0.41%). After all, TransEnterix CEO Todd Pope told us on the last earnings call that Intuitive Surgical was selling discounted versions of refurbished systems in order to compete for deals where price was a major issue. If TransEnterix was still able to win under that scenario, then it may actually have a shot at competing.

Mr. Pope was quite happy about the company's recent achievement, stating, "We are very pleased with the progress we've made in the commercialization of ALF-X during the quarter, as well as having closed our first ALF-X sale in July. We remain enthusiastic about the potential of ALF-X, and will continue to invest in global commercial expansion, including preparing for its 510(k) submission."

Looking ahead

The robotic surgery market is expected to grow at an exponential rate from today. Some market-watchers are predicting that the market will exceed $10 billion in total sales by 2020, which represents enormous growth from the $2 billion that was produced in 2015. That's a wide-open opportunity for everyone who is looking to get into the space, and it could also be big enough to support multiple winners.

The next big hurdle TransEnterix will need to clear is winning FDA approval for its ALF-X system. Given its recent history, that's certainly not a slam dunk, but since the system already managed to win over regulators in Europe, the company's odds of success might be quite good. 

The bigger issue here remains TransEnterix's financial position. With the company's share price down so much, it's hard to imagine that yet another share offering is going to please investors. It's unknown if the debt markets would be an option, either. But with the company's cash burn running in the millions each month, the clock is certainly ticking, so it's going to have to do something.

Given all of that, I'd still argue that the odds of TransEnterix turning into a successful investment from here are quite low, especially if Intuitive Surgical decides to get even more aggressive with its selling efforts. Still, the company's first ALF-X sale is an encouraging sign, so I wouldn't count TransEnterix out either.