Please stand by. We're about to begin. Good morning. Thank you for joining us for Stereotaxis' first quarter 2022 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. At this time, all participants have been placed in a listen-only mode.
The floor will be open for questions and comments following the presentation. 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.
Thank you, Operator, and thank you all for joining us this morning. On our last call two months ago, we provided a fairly comprehensive overview of Stereotaxis' mission, strategic focus, and progress. We'll keep today's call more brief. This is both a challenging and exciting period for Stereotaxis. On the heels of last year, where we demonstrated a restart in capital adoption and overall sales growth, our primary challenge has been driving consistent momentum and growth in capital activity. We are operating in a macro environment with a host of pandemic-related supply chain, personnel, and economic disruptions. In face of these, we demonstrated the ability to successfully launch Genesis and start building a capital sales capability. While system orders and sales have progressed slower than expected, we are making progress.
The $11 million in system revenue we recorded last year was higher than any other year in almost a decade. We received an additional Genesis order since our call two months ago from an existing U.S. hospital customer. Given only the orders we have already received, we are on track for system revenue this year that is approximately 90% of the total system revenue we reported last year. With multiple additional near-term opportunities, we are confident we will show system revenue growth this year. We view ourselves as in the early stages of setting ourselves up for a multi-year period of robust, consistent revenue growth. While many factors are outside of our control, there are factors within our control where we can improve our commercial sophistication, accountability, and strategy. It's our responsibility to focus on what we can control.
We're developing a new capital sales platform that should provide better transparency into the global capital pipeline and more clearly flag risks and actionable items to focus on during the effort to advance any individual deal. Given the complexity of each capital deal, an organized platform like this is very helpful in creating clarity and providing actionable guidance. We hope this will fundamentally improve commercial execution while simultaneously making us better at forecasting results with relevant pipeline analytics. Beyond this capital sales platform, we're looking to enhance our team with new senior sales leadership in Europe, where we see a particular opportunity for both clinical adoption and capital sales with the upcoming launch of our MAGiC catheter. Most important for broader adoption of robotics is that new users have positive experiences with our technology, good clinical outcomes, and successful growing practices.
First quarter was particularly exciting for us on this front. During the quarter, we launched for the first time in many years, multiple fully greenfield robotic EP practices at hospitals entirely new to robotics and with physicians entirely new to our technology. These launches took place at HonorHealth in Scottsdale, Arizona, the National Institute of Cardiology in Warsaw, Poland, and Fuwai Central Hospital in China. We are delighted to see utilization at these practices and across the installed base of Genesis systems greatly exceed global averages. Exiting the first quarter, these three new practices were performing procedures at a rate over 50% higher than the average robotic practice. When we look at our Genesis systems globally, the utilization on these systems is over 100% higher than the average robotic practice.
While there are various factors that impact utilization, the success of the Genesis system and these launches reflects well on the real-world performance, clinical value, and relevance of our technology and the performance of our team. Qualitatively, in speaking with the physicians, it has been heartening to hear how pleased they are with the technology and how they find value across a broad range of arrhythmia procedures beyond their original expectations. This positivity is helping create, and perhaps also mirrors, a similar sentiment that is emerging in the field. I was recently at the Heart Rhythm Society conference in San Francisco, and before that at the European Heart Rhythm Association conference in Copenhagen. In both conferences, we sensed an increasingly positive tone emerging around Stereotaxis and our robotic technology. We had busy booths with many physicians test driving our system.
Changing long-established reputations and countering misperceptions takes time, but there clearly seems to be a qualitative turning of the corner with Stereotaxis being increasingly viewed as innovative, relevant, energetic, and reliable. Innovation is key to living up to that reputation. On our last call, we discussed in more detail our technology pipeline. Five key pillars of our innovation strategy serve as synergistic and independent growth drivers. Collectively, they enable a future where robotic technology is broadly accessible and can be used with a robust ecosystem of modern catheters in EP and for a wide range of endovascular procedures. We're continuing to methodically advance these technologies and our progress remains consistent with previously provided timelines, with many of these approaching regulatory submissions and initial commercialization within the coming year.
Collectively, these innovations are transformational for us as a company and serve as the foundational product ecosystem for preeminent medical robotics company that can broadly transform endovascular interventions. They allow for dramatic structural improvements to our commercial capability, and we are excited by the impact these innovations will have in 2023 and beyond. Kim will now provide some commentary on our financial results, and then I'll make a few financial comments as well before opening the call to Q&A.
Thank you, David, and good morning, everyone. Revenue for the first quarter of 2022 totaled $7 million. This is down from $8.6 million in the prior year first quarter, primarily due to recognizing revenue on one robotic system this quarter compared to two systems in the same quarter last year. System revenue of $1.6 million reflects initial revenue recognition on the delivery of a greenfield Genesis system. Recurring revenue for the quarter of $5.4 million compares to $5.8 million in the prior year first quarter, with revenue impacted by slightly lower service revenue and procedure volume. Gross margin for the first quarter of 2022 was 70% of revenue. Recurring revenue gross margin of 85% remains consistent with previous quarters. System gross margin of 21% continues to reflect significant allocation of overhead expenses over low manufacturing volumes.
Operating expenses in the quarter were $9 million, including $2.5 million in non-cash stock compensation expense. Excluding stock compensation expense, adjusted operating expenses were $6.5 million compared to the prior year adjusted operating expenses of $6.2 million. Operating loss and net loss in the first quarter were both approximately $4.1 million, compared to $1.5 million in the previous year. Adjusted operating loss and net loss for the first quarter, excluding non-cash stock compensation expense, were $1.6 million. Negative free cash flow for the first quarter was $3.3 million. At March 31st, we had cash and cash equivalents of $36.9 million. I will now hand the call back to David.
Thank you, Kim. Given the system orders we received to date, along with our late stage pipeline, we are reiterating our guidance of revenue growth for the year driven by continued commercial adoption of the Genesis RMN system and stable recurring revenue. System revenue for the year will be primarily recognized in the second half of the year. We continue to be focused on driving our commercial and technological progress while maintaining financial prudence. The challenging macroeconomic environment accentuates the importance of self-sufficiency and financial stability. The $3 million of negative free cash flow we had last quarter is above the more normalized level we have previously shown or expect going forward. It includes a meaningful amount of cash payments made for the building of our new headquarters, as well as continued purchases of robot inventory.
Given the challenging supply chain environment, it wouldn't be prudent to try to time inventory purchases, and so we have been willing to spend on inventory earlier than necessary to protect against the uncertainty in supply timelines. We continue to view our balance sheet with $37 million of cash and no debt as very strong. We feel comfortable investing in our team and the infrastructure and projects that are critical for success, and we'll continue to do so while staying relatively near breakeven. Our existing balance sheet allows us to establish and commercialize the product ecosystem we are developing and reach profitability without the need for financings. We look forward to now taking your questions. Operator, can you please open the line to Q&A?
Thank you. To signal for a question, please press star one on your telephone keypad. Also, if you are using a speakerphone, please make sure that your mute button is turned off to allow your signal to reach our equipment. Once again, it is star one for questions. First, we'll go to Frank Takkinen with Lake Street Capital Markets.
Great. Thanks for taking my questions and, congrats on all the progress. I wanted to start on the new programs you called out, and the utilization you're seeing from those, as well as the Genesis installed base. Maybe just take us in a little bit deeper into what those programs fully entail, and if there's any early learnings that you could extrapolate out to Genesis users as far as utilization averages once fully scaled versus the previous installed base.
Sure. Like I mentioned, that was one of the real highlights of the last few months is the launch of these completely new greenfield sites. We've had obviously several Genesis installations over the last year and a half or so since we launched Genesis. Most of those were either to users who had moved to a new hospital but had a lot of experience with our technology previously, or they were replacement projects at existing hospitals. In the first quarter, we had a launch in each of the three major geographies with completely new physicians at completely new hospitals. What was nice was how positive overall those launches have been.
The feedback that we received from the sites has been fantastic, and so overall, that's very heartening when you can go to completely new users and launch things smoothly, and they are grateful and excited to be part of the robotic community. That has been particularly nice. I gave, I think, on the call the utilization numbers for those three sites. Exiting the first quarter was about over 50% higher than what our average utilization globally is at all robotic sites. At the Genesis sites, globally, we're now at over 100% of the utilization of a typical robotic site. It obviously.
Utilization is driven by various factors, and some of the early adopters of Genesis are particularly high robotic users regularly. Still, I think it points to the fact that Genesis is working very nicely in the field. The feedback has been positive and hopefully we can maintain that type of, those types of statistics going forward.
Great. Okay. I'll just ask one more. I think last quarter you called out four late-stage replacement conversations ongoing. Can you give us an update on those four? Was the order in the quarter one of those four, and then what's the status of the other three, if that's the case?
Yep. The order that we received was one of those four, and we have continued discussions with other parties, some in the very late stages and some still moving forward. Again, those were called out specifically as ones that were very easy to identify as very, very high likelihood orders. There remains a relatively robust pipeline behind those of hospitals that we're engaging with.
Perfect. I'll stop there. Thanks for taking my questions, and congrats again on all the progress.
Thank you.
Moving on, we'll go to Adam Maeder with Piper Sandler.
Hey, good morning. Congrats on the progress, and thank you for taking the questions here. Maybe just to start with one on the top line expectation and just trying to deconstruct that a little bit. David, did I hear correctly with the orders that you have in hand, year to date, you're on track for 90% of system revenue that you had last year? Is that kind of like the driving force that combined with the pipeline, why you expect system revenue to grow year-over-year? I just wanted to kind of better understand that, those puts and takes. Then I had a follow-up or two. Thanks.
Sure. Hi, Adam. Yeah, you heard that exactly correctly. With the existing orders that we have already announced now, we would come out to system revenue for this year of approximately 90% of last year. Based off of that and the fact that we are still working on orders that we expect to turn into revenue this year, we're confident in the guidance of growth. In reality, we need one additional order, and we would be above last year's level.
Okay. Appreciate the color there. And then maybe just to ask a big picture question next just on capital environment. Are you seeing any kind of material changes in just CapEx budgets at hospital customers? You know, obviously, there's some macroeconomic challenges and pressures that are seemingly kind of coming down the pike. Just wondering if you've seen any shifts or have things kind of remained you know, fairly resilient like we've seen over the past two years despite the pandemic. I had one quick follow-up. Thanks.
It's hard to discern a pattern that crosses all sites. Anecdotally, there are areas where there is incremental pressure, incremental financial pressure, I think because of some of the costs that hospital systems are seeing and then their reluctance to spending more. There are many cases where business continues as usual or where there might be continued pressure, but obviously electrophysiology labs are important financial centers of the hospital. If they need to invest, then they're ready to invest. I think kind of it's a little bit of a mixed bag. I can't say that there's been any sea change in the environment, but we're definitely still working in an environment full of headwinds.
I think headwinds from our customers' perspective and just general macro headwinds.
Okay. Understood. That's helpful. Then just the last one, and thanks for taking the questions here. Just on the, you know, the pipeline, so RF ablation catheter, and the mobile system, it sounds like those are tracking according to plan in line with previous timelines. Maybe just talk about the level of conviction in delivering against those guideposts. You know, kind of what's left to do before being in position to kind of make those regulatory submissions? Thanks again.
Sure. Yep, we are on track for our development kind of timelines and submission timelines on the MAGiC catheter, specifically the proprietary RF ablation catheter that we're developing. We have done the vast majority of all the testing required for a CE mark submission. I think we're waiting to hear back from one or two final tests that were being done at an outsourced lab. Concurrent with waiting for those results, we're also compiling all of the information for the CE mark submission. We should be able to do that in the summertime, hopefully earlier in the summer. That's obviously on track with what we described on the last call.
Then obviously the regulatory review period is not up to our timeline, but hopefully that would allow for a commercial launch toward the end of this year or beginning of next year. With the mobile system, we're also developing that. We're still in the stages of hardcore development of various aspects of the technology and working on the prototypes that we've built. Given kind of where we are to date, we feel comfortable with the previously reiterated guidance of a submission around year-end. A commercialization at some point next year.
Okay. Perfect. Thank you.
Moving on, we'll go to Alex Nowak with Craig-Hallum Capital Group.
Great. Good morning, everyone. Just, David, open that for those three greenfield sites. How much did, I guess, the innovation coming down from Stereotaxis in a new catheter, but also the new interventional tools, how much did that play into their decision-making to adopt Genesis? Just taking that beyond the three sites, but just in your ordering conversations, how critical are those new tools in the conversation?
Sure. Hi, Alex. Good morning. I'd say that probably the knowledge that we are developing a next-generation ablation catheter that has been known to the community since we started commercializing Genesis. I think it is important for them to know that there is a future, not just in terms of a new robot, but in terms of new ablation catheters and that overall concept of an open ecosystem around robotics. I think that was known when these hospitals ordered Genesis, and it is an important consideration because just the robot by itself without the product ecosystem is not particularly meaningful. They do think about it in terms of the ecosystem.
I'd say one of our biggest challenges still now is the fact that we don't have a newer catheter, and the only catheter that's able to be used with the robot is 15 years old. There definitely is pressure where some sites aren't willing to invest in things based off of future promises. They want to see what's available now. I'd say that's probably one of the bigger pressures we have on our technology and adoption of our robot right now, is the fact that there isn't newer interventional technologies available to be used with the robot. I'd say the availability of guide wires, guide catheters, and the ability to use the robot for broader indications, that was probably not part of any of the consideration of the hospitals when they purchased.
It's just kind of over the last couple months, few months that we've started to engage with hospitals, and our existing physician installed base, and more regularly sharing with them what we're doing also on the vascular navigation side, and starting to prepare them for when a guide wire's available, the types of procedures that might be interesting to perform with it. I think that will start to become more part of the conversation going forward, but that was not really part of the conversation in the past.
That's very helpful. Then maybe expand on the investments you're making and the changes you're making to the commercial organization. Just what have you done so far? What in addition do you plan to do over this year? Then maybe just to kind of highlight the current sales force comp plan structure for launching Genesis or selling Genesis at this time.
Sure. I think I've described before that the vast majority of our commercial team is focused on clinical adoption and working with our existing customers around the world to make sure that they have successful robotic practices. We have a relatively small capital sales team and that includes various people in sales leadership who spend a good portion of their time on capital sales. I guess what I describe our capital sales capability or efforts in the past is, on the one hand, we did create various infrastructure that is helpful things like an ROI model or you know, the clinical dossier that we created that summarizes all the clinical data in a thoughtful fashion or information on the Model-S X-ray and its image quality and radiation dosing.
We created various types of materials, but overall, I'd say that our efforts were a type of hustle and really relying predominantly on the relationship with the physician and being responsive to their questions and to their needs. That was the primary way by which we advanced the deals. What we've noticed is that oftentimes physicians only have part of the picture of how a capital process is advanced or what the main determining factors are, or even the timing of things. The timing that a physician provides might be very different than what an administrator provides once you're able to actually speak with the administrator. As we've been learning, and again, at Stereotaxis for many years, Stereotaxis was having practically no capital sales.
To some extent, we're building a capital sales capability from a standing start. As we've been going through these learnings, we're becoming somewhat more sophisticated in the red flags to watch out for and the things that can delay projects. We're trying to channel all of those learnings into a more organized process that allows us to one, provide kind of a quicker clarity on the status of a project across the key drivers of that project moving forward, to provide better guidance to the sales team on what are the next actionable items that are most impactful. Are there gaps anywhere in terms of literature or kind of tool sets that would be helpful?
Are there red flags that kind of should be addressed much earlier in the process before they become material? I think there's just kind of a maturation of our capital sales process that we're developing, and I think that'll kind of take us a long way from moving from this more hustling environment to a more mature organization.
Very helpful. Then just lastly, we're hearing about some shortages at hospitals of Iohexol and other contrast agents. Just curious if you're seeing this delay any potential cath lab procedures in the last couple weeks.
You've been seeing delays in what?
Iohexol and other contrast agents.
That I've not heard. I've heard all sorts of things coming from the field in terms of, challenges at hospitals. I've not heard that one yet. We do hear still staffing issues. We hear various times, certain types of supply constraints, but I've not heard that one.
Okay. That's good. Appreciate the update. Thank you.
Thank you.
Next, we'll go to Jason Wittes with Loop Capital.
Hi, thanks for taking the questions. Maybe just to follow up. In terms of your discussions on capital equipment sales, has the mobile unit come into play there? Are customers aware of it or are they reacting to it?
There is now some awareness, and I'd say that I do not believe that has impacted the Genesis orders to date. I think overall, it is unlikely to have an impact on the vast majority of our Genesis pipeline, particularly on the replacement cycle side. There is some awareness, though, and there is some discussions already on hospitals that might be interested in that type of platform.
Okay. I know you mentioned timelines are pretty much basically in line from what you discussed last quarter. I think you've always sort of or kind of mentioned that the U.S. approval for the catheter was roughly two years away from the European approval. Is that still the right way to think about timing on that?
Yeah, that feels roughly right. We would be filing for an IDE in the second half of this year after the CE mark submission with a little bit of additional testing we have to do incremental to the CE mark submission for the IDE. We would run the IDE trial and submit the PMA. The IDE trial, the overall construct of it is relatively well-defined by now, given our discussions with FDA. It should be a relatively quick follow-up period, maximum three months. We think that's a trial that can enroll fairly quickly given the type of arrhythmia and the fact that we have an installed base of users.
We're confident that should be a trial that can enroll fairly quickly and have a short follow-up. As we're able to submit the IDE, get that trial started, hopefully progress should be relatively quick.
Great. I'll jump back to you. Thank you very much.
Thank you.
Josh Jennings with Cowen has our next question.
Hi, good morning. Thanks for taking the questions. Was hoping to just get a better understanding, David, of how your sales team is approaching or viewing the opportunity within IDNs in the United States. I know you have Niobes placed at some major hospital systems in IDNs, I think Kaiser, HCA, and sometimes those IDNs, you know, take a best practices approach and replicate, you know, the highest, the best technology and the most efficient strategies from one hospital within a system to others. Do you see these IDNs as an opportunity, and how is your sales force kind of attacking that channel currently?
Hi, Josh. That's a great question. Particularly the two you mentioned, HCA and Kaiser, are IDNs where we do have very successful robotic practices that have great clinical outcomes, very efficient practices, and so kind of are viewed very positively. I say that the challenge in some ways of broader deal at an IDN mimics the challenges that I described earlier of how accessible is your robot and how what type of disposable product ecosystem, interventional product ecosystem is available to work with the robot. The more that you address those two items, the easier it is for an IDN to think about multi-system purchase, which can then be deployed broadly across the hospital network. We do...
You were at the Heart Rhythm Society conference. You noticed us sitting with one of the networks probably there. We do have those discussions. I think overall, we have particularly at one of those, we have good visibility to senior leadership also at the corporate side, and they have good visibility into the impact that our technology has more, you know, more generally at some of their key accounts. Hopefully we'll be able to advance something over the coming quarters.
Again, I think that the concepts of accessibility of robotics and having a broader ecosystem of interventional devices is a very impactful one, generally for any customers and particularly for IDNs as you think about wanting to pursue a multi-system order that gets deployed broadly across accounts.
Thanks. Thanks for that. Follow-up on just China and your building out your kind of ecosystem with EP products with MicroPort and, you know, there's challenges over there, and COVID has been impactful, but hopefully they'll some of the lockdowns will open up. But what are you seeing over there? Any hurdle? I'm sure there's challenges in terms of this collaboration with MicroPort, but how should we be thinking about 2023 and where that ecosystem will stand and then kind of facilitate a ramp in new orders for your robotic system in China?
Sure. Overall, we're delighted about our collaboration with MicroPort. As you mentioned and as Abhi has said, there's been more pressure in China recently. A lot of the MicroPort team, a lot of our team has generally been stuck in quarantine over the last several weeks. If we look at just our numbers, our recurring revenue procedure numbers were obviously hit later in the quarter and this quarter based off the reduced procedures in China. That's that mimics what we've seen kind of in other geographies when COVID had flare-ups, and overall isn't very impactful.
I think kind of the primary effort, as we've described in the past, is the building of this robust ecosystem, getting Genesis approved, having mapping integration with MicroPort's mapping system, bringing both the MAGiC catheter and the family of MicroPort catheters to market in China. That really allows you to take advantage of the robust commercial organization that MicroPort has in the country. Overall, despite the multiple disturbances there, it seems to be going fairly well in terms of advancing that product ecosystem. Even during the lockdown, we've been in communication with their team on a fairly regular basis. There is progress being made.
We still look towards 2023 as a year where most likely the majority of that product ecosystem comes together, and you can start to engage the broader MicroPort commercial team in a stronger launch in China.
Thank you for that. Just to follow up on the China market, I know there was a dataset I think published last year around asymptomatic cerebral emboli and the lower, much lower rates or nonexistent rates in robotic magnetic navigation cardiac ablation cases relative to kind of standard manual radiofrequency ablation cases. Is that dataset getting traction over in China? Are there any follow-up studies planned to investigate that phenomenon further?
Yeah. The data that you described is the one where they did preoperative and postoperative imaging of somewhere 150 or so patients that were getting atrial fibrillation ablation, some robotic, some manual, and showed an 80% or so reduction in silent cerebral strokes in the robotic arm. That overall was a beautiful study. It did generate some interest, and we have actually a few sites that have been talking about potentially trying to replicate the study to corroborate the data. There has been some interest in it. Again, I think that clinical data shifts behavior relatively gradually in the world of procedural medicine.
There have been a few physicians that have talked about wanting to do a follow-on study on that same topic.
Great. Just last question on the neurovascular RMN guidewire development program. Any updates there or anything you can share just in terms of how we should be thinking about the development progress and tracking it over the course of 2022? Thanks for taking all the questions, David. Appreciate it.
Sure. Overall, we're in the development you know, manufacturing scale up and then testing phase. We still look towards roughly the turn of the year as a period of when we would or the beginning of next year of a time when we should be able to start commercializing the first in a family of guide wires. We'll kind of follow that up with a few variants of guide wires and then also the guide catheters. That's that first guide wire will be kind of our initial foray into the vascular navigation world. That product ecosystem will build itself out over the coming quarters. Great. Thank you.
Next, we'll go to Javier Fonseca with Spartan Capital.
Hello, David and Kim. Thanks for taking my call. Quick question as far as the MAGiC catheter. So early in the call was mentioned as far as like the timeline of bringing the catheter to market. My question is, you know, other than any meaningful changes to explain the timeline, when can investors really expect considerable growth in recurring revenue from the MAGiC catheter?
We'd expect to start to see next year in 2023 as we launch the catheter in Europe, to start to see an impact of the catheter being adopted in Europe, and hopefully also driving broader utilization of robotics with the launch. There's probably gonna be somewhat of a gradual aspect to it in Europe just because certain countries can adopt it kind of very easily after CE mark approval. Others still have local tender requirements, and so you have to kind of grind your way through that. Overall, we'd start to see in 2023 some of the impact.
Obviously as we expand throughout Europe and as we are able to achieve U.S. FDA approval, that would be kind of the second big step up.
Excellent. My follow-up question is, along the lines of the new mobile system. So, you know, assuming market approval, you know, what do you expect the typical sales mix to look like for system revenue between Genesis system?
It's very hard at this point to guesstimate that. There's a value to both systems. It depends a little bit on the clinical indication, and the geography and how confident the hospital is in them wanting to adopt a robotic program that they're certain that they're going to be committed to for multiple years, or that they want to just try and see how it goes. At this stage, I think it's a little bit too kind of premature to estimate that. I think that over the longer term, the concept of highly accessible robotics is likely to be more impactful. I think that you would have more of a trend towards mobile systems over time.
In terms of kind of for the first few years of adoption, it's hard to be certain what that mix would be.
Excellent. Thanks for taking my questions.
Sure. Thank you.
That concludes the question- and- answer session. I'd like to turn it back to our presenters for any additional or closing comments.
Okay. Thank you 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.
Thank you. That does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.