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Stereotaxis (NYSEMKT:STXS)
Q1 2021 Earnings Call
May 10, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. Thank you for joining us for the Stereotaxis first-quarter 2021 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-K or 10-Q. We assume no duty to update these statements.  [Operator instructions] As a reminder, today's conference is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, chairman and CEO of Stereotaxis.

David Fischel -- Chairman and Chief Executive Officer

Thank you, operator, and good morning, everyone. I'm joined today by Kim Peery, our chief financial officer. Our last call two months ago was an annual earnings call, and I used the occasion to provide a broader overview of our technology, clinical value, vision, and strategy. We'll keep this quarterly call more brief.

The highlight of the first quarter is Stereotaxis's return to robust double-digit revenue growth with 50% year-over-year growth compared to the first quarter of last year. We have long discussed renewed adoption of robotic systems as the first significant wave of revenue growth in our strategic innovation plan. We are pleased to reap the initial fruits of that strategy. During the first quarter, we shipped a Genesis and Model S system to a hospital establishing a new robotic electrophysiology program in Europe, as well as Niobe system to a hospital establishing a new robotic electrophysiology program in China.

In both of these cases, partial revenue recognition was triggered upon shipment of systems and the revenue reported reflects a portion of the overall contract value from those two deals. We expect to install both systems late in the second quarter and to begin procedures in summer. On our last call, we reported on three additional system orders that had been received, two greenfield systems in the U.S., and a replacement cycle system in Europe. These remain on track for installation during the third quarter.

As mentioned on the last call, we will announce the names of these hospitals as they are ready to highlight their clinical and technological leadership in their communities. In the two months since our last call, we were pleased to receive an additional order for our Genesis robot and the Model S imaging system from an existing customer in the Midwest. The customer is part of a large hospital network and the terms of the order make it likely that an incremental Genesis system model will be ordered from the network prior to year-end. We continue to see significant interest in Genesis across geographies and at both potential new and existing hospital customers.

The timing of any individual order remains difficult to predict, but we are pleased with the quality of discussions and remain confident in a robust pace of orders in the coming quarters. Despite a still challenging macro environment, our confidence in the Genesis opportunity is predicated upon three main factors. First, physicians continue to have great experiences with the Genesis system. Both Banner University and Helsinki University remain highly active with over 250 robotic procedures performed on Genesis to date.

Physicians have started visiting both sites virtually or in person. During a recent in-person visit, a physician summed up the typical feedback nicely. The combination of Genesis Model S and Odyssey is very impressive, this visit very much exceeded my expectations. Second, from the bottom up, we continue to engage with customers in a robust fashion and build our commercial capabilities.

In the past two months, we hosted over 38 physicians and administrators on 23 separate telerobotic test drives of Genesis. 30% of these visits were first discussions with greenfield opportunities. Third, we can sense a gradual sign in Stereotaxis's reputation and visibility in the industry. While this is a perception and therefore, less tangible, our visibility across conferences last month is a case of point.

Just during the month of April, two separate live robotic procedures were broadcast from regional EP conferences, physicians presented our technology at three separate international conferences, and I have the opportunity to provide the keynote talk at an international conference on robotic surgery. At ERA, the European Heart Rhythm Association, our symposium was chaired enthusiastically by Professor Karl-Heinz Kuck, a pioneer of cardiac ablation therapy and the previous president of ERA. We were also pleased to learn that the Society for Cardiac Robotic Navigation was invited to host a session at the Heart Rhythm Society's annual conference in July titled, Robotics and Automation in Catheter Ablation. This is the first time SCRN has been formally included in the HRS program.

While focused on successfully executing this first wave of growth, we continue to aggressively advance the second and third waves of our strategic innovation plan. Stereotaxis's advanced robotically navigated magnetic ablation catheter continues to progress methodically through the manufacturing and testing processes needed for submissions for European approval and a U.S. IDE study. The pandemic restrictions in Europe caused some manufacturing delays at our partner, Osypka, but our current schedule puts us on track for CE Mark submission in Europe this September.

The U.S. IDE application should take place shortly thereafter. We continue to work energetically on the third wave of innovations that will accelerate our adoption in electrophysiology and expand our robotic technology into new adjacent markets. We believe we will be in a position to discuss these in more detail toward the end of this year.

Kim will now provide some commentary on our financial results, and then I will make a few financial comments as well before opening the call to Q&A. 

Kim Peery -- Chief Financial Officer

Thank you, David, and good morning, everyone. Revenue for the first quarter of 2021 totaled 8.6 million, a 50% increase from the prior-year first quarter. System revenue of 2.6 million reflects initial revenue recognition on the delivery of a Genesis system to Europe and Niobe system to China. Recurring revenue for the quarter was 5.8 million compared to 5.5 million in the prior-year first quarter.

Procedure volumes were up slightly compared to the fourth quarter and up approximately 5% from the first quarter of 2020, but we're still down approximately 15% from the first quarter of 2019. Procedures improved each month during the current quarter with procedures in March of this year down only 3% from March of 2019. Gross margin for the first quarter of 2021 was 70% of revenue with system gross margin of 45% and recurring revenue gross margin of 84%. Operating expenses in the quarter of 7.5 million included 1.4 million in noncash stock compensation expense.

Increased noncash stock compensation reflects our higher stock price and the previously announced CEO performance stock plan. Excluding stock compensation expense, adjusted operating expenses were 6.2 million, consistent with the prior-year first quarter. Operating loss and net loss in the first quarter were 1.5 million compared to 2.1 million and 2 million in the previous year. Adjusted operating loss and net loss for the first quarter, excluding noncash stock compensation expense, were 0.2 million.

Negative free cash flow for the first quarter was 0.3 million compared to 2.2 million in the prior-year first quarter. At March 31, 2021, we had cash and cash equivalents of 44.1 million. I will now hand the call back to David. 

David Fischel -- Chairman and Chief Executive Officer

Thank you, Kim. We are pleased by our performance in the quarter, highlighted by a 50% increase in top-line revenue. We continue to expect 2021 to be the start of a multi-year period of growth and we reiterate our guidance of robust double-digit revenue growth in 2021, with robotic system revenue of between $10 million to $20 million. We continue to invest in the team infrastructure and projects that are critical for both near and long-term success and are proud that we are able to do so while maintaining financial discipline.

Our robust balance sheet allows us to reach profitability without the need for additional financings. We look forward to now taking your questions. Operator, can you please open the line to Q&A?

Questions & Answers:


Operator

Of course. [Operator instructions] Our first question comes from Frank Takkinen with Lake Street Capital Markets. Please go ahead.

Frank Takkinen -- Lake Street Capital -- Analyst

Hey, thanks for taking my questions, and congrats on the quarter.

David Fischel -- Chairman and Chief Executive Officer

Hi, Frank. Good morning. Thank you.

Frank Takkinen -- Lake Street Capital -- Analyst

Absolutely. So first, I wanted to start with recognition of installs. Given you recognize the revenue this quarter they're installing next quarter, could you speak to the three systems you anticipate installing in the third quarter on whether or not those will be recognized in the second quarter or third quarter? And then I know this has been brought up before in previous calls, but could you just refresh our thinking on the timing between order recognition, revenue recognition, and then install?

David Fischel -- Chairman and Chief Executive Officer

Sure, let's try to do it. And the difficulty is that there's no one rule. And so depending on every individual contract with the hospital in every situation, and revenue recognition is somewhat driven differently. And so for the example, let's say that both the European and the Chinese system that were sold.

Those were shipped to distributors. And based on the contract with the distributors, we were able to recognize kind of a good portion -- a portion of the revenue kind of upon shipment. And we probably -- I believe we'll have at least one additional of the installations that will take place in summer. We'll have one of those that likely revenue recognition will take place in the second quarter.

Otherwise, I think that kind of some of the remainder revenue recognition on multiple of these systems that were shipped and on the two remaining that will be shipped in the summer and installed in the summer will take place in the third quarter.

Frank Takkinen -- Lake Street Capital -- Analyst

Perfect. And then if I could just ask a bigger picture question on the return to the system sales. What do you believe is kind of standing in between you right now to being at a consistent 10-plus system sales cycle every year?

David Fischel -- Chairman and Chief Executive Officer

So I think we're kind of trying to do many things from the bottom up to get to that type of situation. We obviously have the replacement cycle, which we've still not really benefited from, I think that is gradually going to become a kind of much more meaningful of reality in those 10 systems that kind of you're calling for to something can be driven just by the replacement cycle. Obviously, kind of we're also focusing, like I mentioned before, on building up our commercial capabilities, whether it's in the more traditional ways like adding to the sales team or in some of the more kind of unique ways like our TeleRobotic test drives and ways to directly reach out and engage with potential customers. And I think kind of the combination of that gives us confidence that that type of goal is not a difficult goal to reach.

And then again, I think there are ways where, as we think about -- as we think about how we build our products, how we're able to reach customers, the challenges of adoption, there's ways to go obviously far beyond that type of number.

Frank Takkinen -- Lake Street Capital -- Analyst

Got it. And then just last one for me on the catheter with the submission coming up in the EU in September, where does this place you assuming things go to plan from an approval standpoint, and how do you anticipate your commercial investments to trend there after you receiving approval?

David Fischel -- Chairman and Chief Executive Officer

So the European notified body, it can take a couple of months and it can take longer. We're doing it under the new MDR, which generally has had a longer review timeline, but we run the benefit that Osypka, our manufacturing and partner and who's kind of involved with us, very involved with us on the regulatory process in Europe, has actually been going through its own a new MDR recertification of various of its own ablation catheters, and so they -- we have learned a lot through that process and I think we're going to kind of be very well-prepped with a good submission, working with exactly the same notified body for our own submission later this year. And so I would hope that sometime toward the end of this year, beginning of next year, we can have such approval and can commercialize the catheter in Europe. We're doing a lot of preparatory work in advance of the commercialization, not just on the regulatory manufacturing side like I mentioned in the prepared remarks, but also on the commercial side with individualized business plans for every act -- for every existing robotic customer we have in Europe and really kind of making sure that we should be in a position to launch well when we start in Europe.

We will probably -- we will kind of -- we will see how we build up the commercial team upon launch. But we are cognizant that one of the models that exist in the industry is to have a sales rep almost at every hospital. And so I think kind of where we see the opportunity to grow robotic procedure volume meaningfully by shifting to that type of model because that's something that that hospital would very much benefit from. That's the type of model that now is realistic and feasible with -- that with an ablation catheter of our own.

Frank Takkinen -- Lake Street Capital -- Analyst

Got it. Perfect. Thanks, and congrats again on the good quarter. 

David Fischel -- Chairman and Chief Executive Officer

Thank you.

Operator

Next, we will go to Josh Jennings with Cowen. Please go ahead.

Josh Jennings -- Cowen and Company -- Analyst

Hi. Thanks. Good morning and congratulations to the nice start to the year. David, I was hoping to just touch on the system revenue guidance range that's out there, $10 million to $20 million.

You're clearly on track to meet that range. But any updated thoughts about the range and how the sales funnel shaping? I know you've given us a bunch in the call, but any incremental color would be appreciated, just high-level thoughts on your confidence in that range today?

David Fischel -- Chairman and Chief Executive Officer

Sure. Hi, Josh. Good morning. So when we initially presented the guidance, I think we were asked and we commented that kind of specificity is difficult in the early launch and you see that there is still lumpiness in when we receive orders and the timely -- timelines of when those orders convert into revenue.

And so the range seemed appropriate given up -- given the bottom-up assessment of opportunities set. And so that range still feels appropriate. It's -- and it's hard to know exactly how it will play out as the net orders that were announced today do set us up nicely to be within the range as you kind of noted. And we have a few more months, probably kind of three more months, two, three more months in which we can receive orders and those could still translate into 2021 revenue.

And so we'll have to see kind of how, you know, how that plays out. But I think that guidance range still of 10 million to 20 million, it feels that -- it feels like a good place to be.

Josh Jennings -- Cowen and Company -- Analyst

Excellent. And then just to follow up on your comments on the Genesis replacement opportunity, I was hoping maybe you could share some more intel on how you see that evolving, where it stands today. You just received a replacement order over the last couple of months in the U.S., and as you said, you could potent a replacement opportunity could be a source of 10-plus system orders a year eventually. But we're hoping to just get some more details on how you're seeing that replacement opportunity evolving and when do you think you can hit full stride in that replacement opportunity?

David Fischel -- Chairman and Chief Executive Officer

Sure. So on the last call, I mentioned that kind of -- it was an interesting observation how -- while originally, I would have thought that replacement cycle sales would be the first driver of kind of adoption of Genesis and it would be harder for us to get our traction or take more time for us to get our traction in our greenfield site. Obviously, we started off the gate kind of very well on the greenfield site. And with a relatively slow adoption on the replacement cycle, I think driven by the macro-environment where hospitals did not want to spend additional capital on replacing labs, replacing X-rays unless it was absolutely necessary while they were more open to spending capital on strategically building out new labs, new capabilities for the hospital.

We're starting to see more engagement on the replacement cycle side from various hospitals and that our existing customers and are now kind of looking to replace their labs again after the kind of halt that took place a year ago with COVID. And I sense that most of those discussions are for 2022 budgets or 2022 planning. So I don't -- I think we might receive additional orders this year, but generally, I would think that kind of in 2022, we very much might have that kind of annualized and kind of fair level of replacement cycle revenue that kind of that you would think based on our installed base.

Josh Jennings -- Cowen and Company -- Analyst

Great. Thanks for sharing that. And my last question, just on the China opportunity, you shipped to Niobe system to a new center. I think it might be helpful just to kind of help us get our arms around the China opportunity.

Sorry, it's a little bit of a broad question but how do you see that channel evolving? And any updates maybe you could share or just remind us of the installed base today. Can China be as big of an opportunity as Europe or the U.S. over time? And what's the approval pathway and or any timing, maybe too early for timing, but for Genesis in China? Thanks for taking all the questions, David.

David Fischel -- Chairman and Chief Executive Officer

Sure. Thanks a lot. It's actually a great question. And overall, China still is a small, small part of our overall business.

We have about five systems there. So it's kind of single-digit market share from an installed base perspective and -- but what we've seen in China is a lot of engagement with the physicians and customers there. Both in terms of their procedure volumes, they're highly, highly active and I think that's partially also driven by robotics. Enabling many more physicians there to do cardiac ablation procedures where otherwise they didn't have -- they didn't receive the training, or they didn't have the ability to do complex cardiac ablation procedures.

The training programs for electrophysiology there are still kind of less refined and kind of in the U.S. or Europe. And so we've seen kind of very high utilization of our systems in China and we've also seen kind of other companies which are kind of interested in working with us in China. And so we're going to be kind of prudent in anything we do and we don't kind of -- we will kind of advance things in a prudent fashion there.

But overall, I kind of a sense that there are actually very good opportunities in China to grow a robust kind of business and to collaborate with others. And I hope we'll be able to kind of provide more updates in the coming quarters.

Operator

Thank you. [Operator instructions] We will take our next question from Jason Wittes with Northland. Please go ahead.

Jason Wittes -- Northland -- Analyst

Hi, thanks for taking the question. First off, you mentioned that you had an existing customer who had an order for a Genesis system. It sounds like that's not a replacement, that's an addition. Do I have that correct? And what are they doing with their old Niobe system?

David Fischel -- Chairman and Chief Executive Officer

No, so that is a replacement.

Jason Wittes -- Northland -- Analyst

Oh, that is a replacement. OK, so you do have one replacement booked this year thus far? Just to be clear. And --

David Fischel -- Chairman and Chief Executive Officer

And we have really -- we have one replacement that -- one of the five orders that we discussed last time was a replacement cycle order in Europe. And this is now the second replacement cycle, which is the first one in the U.S.

Jason Wittes -- Northland -- Analyst

OK. Thanks for clarifying. And then, related to that, you said it sounds like they're also looking to add an additional system. Did I hear that correct?

David Fischel -- Chairman and Chief Executive Officer

There's language in the contract which makes it likely that the hospital system will acquire an additional rollout this year. 

Jason Wittes -- Northland -- Analyst

OK. And then, you know, related to the third -- I think you mentioned it was 38 contacts and 20 visits this quarter. In terms of a breakout, in terms of what our new customers, what our existing customers, can you give us a sense of what that might look like?

David Fischel -- Chairman and Chief Executive Officer

Sure. So yeah, it was 38 individuals on 23 separate TeleRobotic test drive visits. And 30% of those visits, so I think it was seven of them, were first discussions with greenfield opportunities.

Jason Wittes -- Northland -- Analyst

OK. I think that's similar to what you were seeing last year or is it slightly different? 

David Fischel -- Chairman and Chief Executive Officer

Yeah, the rate is overall similar. You're correct. 

Jason Wittes -- Northland -- Analyst

OK. And then you mentioned, kind of your longer-term strategy plan -- I think the third point reputation build. I'm curious in terms of what you think the state of Texas's current reputation is among users and, you know, what you're looking to move it to?

David Fischel -- Chairman and Chief Executive Officer

So I think kind of on the reputation side, I think we've done well in the last few years in rebuilding our reputation among users. And in that kind of a big part of our effort, over the last few years, was really reengaging with our existing customers with existing robotic ablation practices and making sure they had the support and tools at their disposal to be highly successful and to be able to showcase their success. And so I think overall, our engagement with existing customers has gone well. You obviously have a wide -- like in anything, you have a wide disparity of opinions out there, but I think we've overall done well in reengaging our existing customers.

The big challenge for a company like us is that while we're highly differentiated in the field, we're still less than 1% market share. And so the vast majority of people just don't know us or, you know, might have heard the name, Stereotaxis, but really don't have any and any good feeling or understanding for what we actually do, how our technology works, the clinical benefits of it. And so I think that's where broader visibility and awareness and generating that visibility in the community is a big part of our work. And so that's kind of really what we've been also working to do and I think kind of things like April, which I don't know how it all bunched up there but, you know, tap multiple live robotic procedures and to have kind of an -- and multiple talks either by us or by just physicians being invited to speak about their use of our technology and the fact that the Society for Cardiac Robotic Navigation was granted a session at the Heart Rhythm Society Annual Conference.

And if all of those are kind of beneficial in introducing Stereotaxis' technology to the broader electrophysiology community.

Jason Wittes -- Northland -- Analyst

OK. Thank you. That's helpful. And a very long-term question and I'm not sure whether it's premature to answer this but when you get the catheter approved, would you be in a position or are you considering bundling basically instead of capital equipment -- doing a direct capital equipment sale, lumping in sort of minimum orders with catheters into your plate.

Is that work on the business model or is that still -- is it still going to be capital equipment plus just per-procedure volume is the way you're looking at it?

David Fischel -- Chairman and Chief Executive Officer

So, we want to accelerate the adoption of robotics and make establishing robotic electrophysiology, and more broadly, robotic interventional labs much more accessible and affordable. With that being said, there is a value to robotic systems and that value has been defined clearly by also other robotic players in the healthcare field, in the surgery field. And so, you don't want to discount at all that value. But so if there are ways to retain that value while making it easier for hospitals to go through budget cycles or to use the finances that they have available from one bucket instead of another bucket, I think that's definitely something that should be done.

And then -- and while it's difficult to do with our current disposable given the ASP per procedure as you have an ablation catheter, you can enable those types of revenue models or adoption kind of models. And so, that's definitely something that we'll have in mind as a way to accelerate adoption.

Jason Wittes -- Northland -- Analyst

OK. That's helpful. Maybe a requisite question, I think most MedTech companies are being asked this quarter. In terms of monthly procedure volumes, did you see an improvement as the months progressed, or how would you characterize the trend this month in terms of month-to-month performance as COVID sort of improves?

David Fischel -- Chairman and Chief Executive Officer

Yep. So, kind of Kim did mention it in the prepared remarks that we did see an improvement from kind of January to February to March, and with March being down about I think 3% from March of 2019. Obviously, versus 2020, we expect a very, you know, we expect high growth or good growth in procedure volumes. But versus 2019, March of 2021 was down 3%.

And so, I don't know yet if we'll get back to growth over pre-pandemic levels, but we're gradually kind of filling the gap that was caused over the last year.

Jason Wittes -- Northland -- Analyst

Thank you very much.

David Fischel -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Steven Shelerud of Feltl and Company. Please go ahead.

Steven Shelerud

Gentlemen, thanks and nice quarter. Congratulations on the growth of 12%. And I just want a clarification on the revenue side of things. You mentioned the $10 million to $20 million revenue that -- is that for 2021?

David Fischel -- Chairman and Chief Executive Officer

Yeah. That's system revenue for 2021. So, that's the guidance for system revenue in 2021.

Steven Shelerud

OK. So, that's system only, correct?

David Fischel -- Chairman and Chief Executive Officer

Yes.

Steven Shelerud

OK. And to -- going out to ask a -- just ask regarding the -- regarding this lawsuit that's been out there. It's a very generic statement. I don't know what -- I can't imagine what their Cascala Law.

And even -- do you have any color on that on what their claims are or -- I think the performance of the company had been outstanding. So, do you folks -- can you comment on what they might be after here?

David Fischel -- Chairman and Chief Executive Officer

Sure. I think they did kind of state it, so it is in the public record. I'm kind of -- we're kind of into -- we're obviously disappointed kind of to see the lawsuit. The lawsuit kind of is around the stock compensation plan that was placed for me earlier this year by the board and that is up for shareholder vote in our upcoming shareholder meeting in a couple of weeks.

They feel that there was limited transparency and I guess kind of in that and are calling for additional information, and to make sure that that was done in a proper fashion. We are in a period where there is increased focus on corporate governance and executive compensation that reflects and is aligned with performance. And I think that focus is great, and it makes the markets a much better place. And I think that the Stereotaxis board has in many ways been ahead of its time and commendable in being particularly focused on the values of alignment of interest with shareholders, and in implementing a stock plan that is fully tied to performance and being transparent with shareholders throughout that process.

But whenever you do something that is not the standard thing, even if in my view and the board's view it is more aligned with shareholders, it's more tied to performance, it's ultimately better for shareholders than the standard thing. I think whenever you do something that differs from the norm, it sometimes kind of drives that type of behavior. And so, again, it's disappointing, but I hope kind of we can resolve it and we'll obviously make sure that it doesn't distract us from our core focus, which is advancing the technology, enabling physicians to treat patients better. You know, we'll kind of that -- this is a side issue.

Steven Shelerud

OK. That's great. And it sounds like you're not concerned about it. And I would agree that your compensation structure is -- puts you on the same side as the investors.

You're all on the same side on this. And if I understand what you're saying is that this is a bit out of normal in terms of compensation and that maybe triggered this, you know, just for them to want clarification, I guess. Is that accurate?

David Fischel -- Chairman and Chief Executive Officer

That's what it seems like. We're still in the early stages, so we'll have to see how it goes. But yeah, that's what it seems like. But thank you and your commentary matches what I've heard from the majority of shareholders on the plan.

And again, we kind of in some ways, I have this feeling the phrase -- like the phrase no good deed goes unpunished. I think we and the board try to establish something that was very much shareholder-friendly. But again, sometimes, different people have different views.

Steven Shelerud

OK. Thank you for answering that and again great quarter and I look forward to -- looking to a get a glimpse forward too. Thanks for taking my call.

David Fischel -- Chairman and Chief Executive Officer

Thank you.

Operator

That concludes today's question-and-answer session. Mr. Fischel, at this time, I will turn the conference back to you for any final remarks.

David Fischel -- Chairman and Chief Executive Officer

OK. Thank you very much for your questions and for your continued support and interest in Stereotaxis. We look forward to working hard on your behalf in the coming months and speaking again next quarter. Thank you.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

David Fischel -- Chairman and Chief Executive Officer

Kim Peery -- Chief Financial Officer

Frank Takkinen -- Lake Street Capital -- Analyst

Josh Jennings -- Cowen and Company -- Analyst

Jason Wittes -- Northland -- Analyst

Steven Shelerud

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