Earnings Transcript for ASXC - Q2 Fiscal Year 2022

Operator: Thank you for standing by. This is the conference operator. Welcome to the Asensus Surgical Second Quarter 2022 Business and Financial Update Conference Call. [Operator Instructions] I would now like to turn the conference over to Mark Klausner, Westwicke Partners. Please go ahead.

Mark Klausner: Good afternoon, everyone and thank you for joining us for the Asensus Surgical second quarter 2022 business and financial update conference call. On the call with me today are Anthony Fernando, President and Chief Executive Officer and Shameze Rampertab, Chief Financial Officer. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call, including any guidance provided, are forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company’s business, including any impact from the COVID-19 pandemic and other geopolitical factors beyond our control. The company undertakes no obligation to update the information provided on this call or discussion of risks and uncertainties associated with the Asensus Surgical business. I encourage you to review the company’s filings with the Securities and Exchange Commission, including the 2021 Form 10-K filed in February 2022 and the Form 10-Q expected to be filed later today and any other filings we make with the SEC. During this call, we will also present certain non-GAAP financial information related to adjusted net loss attributable to common stockholders and the adjusted net loss per common share attributable to common stockholders. Management believes that these non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain non-cash and other expenses that are not indicative of the company’s core operating results. Management uses non-GAAP measures to compare our performance relative to forecast and strategic plans, to benchmark our performance externally against competitors, and for certain compensation decisions. Reconciliations from U.S. GAAP to non-GAAP results are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our website. It is now my pleasure to turn the call over to Asensus Surgical’s President and Chief Executive Officer, Anthony Fernando.

Anthony Fernando: Thanks, Mark and thank you all for joining us today. On today’s call, I will provide an overview of our recent accomplishments and then ask Shameze to review our financial performance, after which I will discuss our performance during the second quarter as well as our priorities for the rest of 2022 before turning to Q&A. Before turning the call over to Shameze, I would like to provide an overview of our recent performance. Similar to many companies with surgical procedure businesses, we experienced a number of macro headwinds during the quarter. We have continued to see procedure volumes be negatively impacted by hospital staffing shortages and inflationary repressors. Despite those headwinds, we delivered a strong 34% year-over-year increase in Senhance case volumes, largely a result of significant growth in our European sites. This performance continues to validate the utility of Senhance among surgeons across a variety of geographies and surgical specialty and continue to feed the augmented intelligence development engine, which will help deliver the intelligent capabilities of Performance-Guidance Surgery. We also experienced disruptions to our commercial efforts as hospitals staffing, capital purchasing trends, supply chain challenges, and the ongoing conflict in Eastern Europe impacted our ability to place new systems during the quarter. Even with this, we have installed 1 system year-to-date and continue to be encouraged by the development of our pipeline with 2 additional system orders on our books that we expect to be installed within the next few months. During the second quarter, we attended the Society of Robotic Surgery Conference, or SRS, at the end of June where we had several presentations on the clinical performance of Senhance and our vision for Performance-Guided Surgery. Additionally, Dr. Amit Trivedi, the Chair of Surgery at Hackensack Meridian Health, Pascack Valley Medical Center led a breakfast symposium in which he described his successful experience with the ISU performing sleeve gastrectomies, and his overall experience with Performance-Guided Surgery in bariatrics as has have performed over 300 cases using the Senhance system. In July, we attended the 30th International Congress of European Association for Endoscopic Surgery, or EAES, in Kraków, Poland. We participated in meet-the-expert sessions throughout the event in which our team shared clinical insights and demonstrated the features of the Senhance system. These were both great opportunities to show the impressive capabilities that Senhance System and the ISU have to offer. As it is only 1 of 2 approved multiport systems in the U.S., the Senhance System offers truly unique capabilities such as haptic feedback, 3-millimeter instrumentation, and the ISU, the industry’s only digital augmented intelligence platform available for use. With that, I will turn the call over to Shameze for a financial update.

Shameze Rampertab: Thanks, Anthony. Turning to the quarter, for the 3 months ended June 30, 2022, the company reported revenue of $1 million as compared to revenue of $1.1 million in the 3 months ended June 30, 2021. Revenue in the second quarter of 2022 included $0.3 million in lease revenue, $0.3 million in instruments and accessories and $0.4 million in services. For the 3 months ended June 30, 2022, total operating expenses were $18.2 million as compared to $14.8 million in the 3 months ended June 30, 2021. For the 3 months ended June 30, 2022, net loss attributable to common stockholders was $19.6 million or $0.08 per share as compared to a net loss attributable to common stockholders of $13.2 million or $0.06 per share in the 3 months ended June 30, 2021. For the 3 months ended June 30, 2022, the adjusted net loss attributable to common stockholders was $17.3 million or $0.07 per share as compared to an adjusted net loss of $12.7 million or $0.05 per share in the 3 months ended June 30, 2021. Adjusted net loss is GAAP net loss adjusted for the following items

Anthony Fernando: Thanks, Shameze. I would like to provide an update on recent performance as well as the progress we have made on the key focus areas for 2022. As a reminder, those are

Operator: [Operator Instructions] The first question is from RK Ramakanth from H.C. Wainwright. Please go ahead.

RK Ramakanth: Thank you. This is RK from H.C. Wainwright. Good afternoon Anthony and Shameze. It looks like it was a pretty decent quarter considering everything I just said. So, I just want – I understand a little bit more about your confidence of ability to install 8 to 10 devices for the year. If you can remind us how many has been installed to-date. And in what regions do you think the future installations, which regions are you kind of concentrating and working on for the next set of installations for the year?

Anthony Fernando: Hi RK. So, let me try to answer that. So, currently, we have one – we have installed one new system in Germany. And like we said, we have two on the books that will get installed in the coming months. And once they get installed, we will obviously share the sites and all the details associated with each of those. And for the rest of the year, I think the pipeline remains pretty good. As you guys have seen repeatedly, we had very good traction in Europe. So, I would think that Europe is going to lead the charge in terms of installs for the rest of the year and there is a pretty healthy pipeline there. And also, Japan and the U.S., they both have pretty good pipelines and we expect to see new installations in all three regions, but would primarily be led by Western Europe.

RK Ramakanth: Okay. Perfect. And then on the procedures, as you said, you have greater than 1,300 procedures in the first half of the year. So, certainly, that is tracking well. And based on what you are seeing on the procedures, how – I am just trying to understand how to connect the dots between the procedures and the revenue for the rest of the year?

Anthony Fernando: Yes. So, I think the connectivity really depends on the type of arrangement that we have because if it’s somewhat of a leasing arrangement, then a certain volume of procedures are part of the leasing arrangement and anything additional would generate additional revenue. But then there are many systems that were purchased prior to our leasing arrangements. So, those obviously have a very nice revenue stream coming from consumables and also the service agreement. So, it’s going to be a mix between the consumables service revenue and then the leasing revenues from current systems and then also the new systems that we place as part of the rest of the – remaining months of the year.

RK Ramakanth: Thanks for that Anthony. Last question from me, on the articulating instruments, obviously, that’s a feature, which I believe surgeons really like. So, when you make such betterment on your – on the Senhance System, is there a way how you monitor not only the – obviously, it’s the utility, but also how it attracts new clients or new needs for additional instrumentation. So, I am just trying to have an understanding of the ROI of some of these investments you continuously do on Senhance.

Anthony Fernando: Yes. So, RK, if I understood your question correctly, when we talk about articulated instruments, this has been a request of several surgeons and based on that request is why we developed this instrument. So, we know there is a strong pull from the market for this. And then we are hoping that we will be able to see an increase in adoption of these instruments and the acceleration of procedure growth at the institution. So, we are pretty close to all the sites. So, we have a pretty good idea of the level of adoption and the acceleration of the procedures being used by each of the surgeons. And not only the current surgeons, but we also think that once we add the articulation, it will even increase the level of confidence for additional surgeons at the existing hospitals who might also join to do cases on Senhance. So, there is a two-pronged approach here. One, kind of providing tools for the existing surgeon community and then also trying to attract newer surgeons and existing hospitals and obviously, new hospitals as well.

RK Ramakanth: Fantastic. Thank you. Thanks for taking all my questions.

Anthony Fernando: Thank you, RK.

Operator: [Operator Instructions] This concludes today’s question-and-answer session. I would like to turn the conference back over to Anthony Fernando for – pardon me, there is now another question from Ross Osborn from Cantor Fitzgerald. Please go ahead.

Ross Osborn: Hi. Congrats on the progress you made in the quarter and thanks for taking my question. So, I guess starting out with regards to the system placements or system placement in the quarter and then two announced orders, could you provide a little more color on how long the sales process took from initiating those conversations until the orders are placed? And then also, if possible, what attracted the buyers to the Senhance System relative to competitors?

Anthony Fernando: Hi Ross. So, I think it’s a varying timeline. We have had some that are relatively long, especially going through certain tender processes could take north of 12 months or four quarters and there are others that convert within the same quarter. So, I think we have the full spectrum of the time it takes to convert something to an order. On what’s attractive, I think there are a few things. One is the fact that it’s a laparoscopic tool. So, the learning curve is relatively small and short and it’s a very familiar interface for the laparoscopic surgeons, and also the fact some of the features that we offer in terms of haptic feedback, the use of 3-millimeter instrumentation, those tend to be things that are attractive. And then also not to mention the digital features that we offer with the Intelligent Surgical Unit, that’s a unique proposition for some of the surgeons. They are very keen on these digital features and being able to do more and be able to see the potential of what they can do for them. So, that’s been yet another point. And the third is the economics. I think we have continued to show the economic value from a per procedure point of view and that remains. So, we have publications. We have data from some of the institutions that we are able to share with other institutions, and they talk amongst themselves as well and compare notes on costs. So, that’s also another attractor. So, those factors put together is what’s driving some of these new sites to be convinced that Senhance is the right choice for them.

Ross Osborn: Great. Understood. And then I guess outside of the expanded ISU capabilities, what else is the company doing to drive performance-guided surgery?

Anthony Fernando: Yes. So, on the performance-guided surgery front, it’s a two-factor thing. One is the technology that’s continuing to evolve and develop. And then at the same time, even organizationally, we are kind of realigning ourselves. We have just created a new medical affairs function. We brought in a seasoned general surgeon to be part of the team as the Vice President of Medical Affairs, so that we can kind of converge this innovative technology and also put things together between the technology, clinical data in order to optimize the procedure-specific solution. So, it’s a – technology alone is not enough. So, at the same time, we are evolving and adapting the organization to be able to provide value and make it clear to be able to – we find the solution and also train the surgeons and develop all the different techniques to derive value. So, that’s kind of what we are doing on – to drive performance-guided surgery on both fronts, externally and then internally being able to support it.

Ross Osborn: Sounds great. Thanks for taking my questions and congrats on the progress.

Anthony Fernando: Thank you, Ross.

Operator: There are no further questions. I will now hand the call back over to Anthony Fernando for any closing remarks.

Anthony Fernando: Thank you again for your interest in Asensus Surgical. And we look forward to updating you on our progress on the next quarterly call. Thank you.

Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.