ASXC - Asensus Surgical Inc. (ASXC) CEO Anthony Fernando on Q2 2022 Results - Earnings Call Transcript
Asensus Surgical, Inc. (ASXC)
Q2 2022 Earnings Conference Call
August 8, 2022 16:30 ET
Company Participants
Mark Klausner - Investor Relations
Anthony Fernando - President and Chief Executive Officer
Shameze Rampertab - Chief Financial Officer
Conference Call Participants
RK Ramakanth - H.C. Wainwright
Ross Osborn - Cantor Fitzgerald
Presentation
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: amortization of intangible assets, change in fair value of contingent consideration, property and equipment impairment, gain on extinguishment of debt, and change in fair value of warrant liabilities, all of which are non-cash charges. Adjusted net loss attributable to common stockholders is a non-GAAP financial measure. The reconciliation from GAAP to non-GAAP measures can be found in our earnings release.
Turning to the balance sheet. The company had cash, cash equivalents, short-term and long-term investments, excluding restricted cash, of approximately $103.8 million, and working capital of $98.9 million as of June 30, 2022.
I would now like to turn the call back over to Anthony.
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: first, the continued market development of the Senhance System; and second, the ongoing development of our product portfolio and continuing the technological advancement of Senhance.
Starting with market development. This year, we continue to expect to have two to three published papers over the course of the rest of the year. These peer-reviewed studies are vital for providing real-world data on how the Senhance platform, the ISU and all of the features of Senhance can benefit surgeons and patients across a wide variety of surgical specialties. In the second quarter, we had six new publications, bringing the total for the year to 10. One key publication based on a literature review specifically focused on robotic applications for pediatric surgery, which placed Senhance in high regard, particularly with 3-millimeter instruments. This review identified 36 different publications that suggested robotically-assisted surgery was a viable alternative for pediatric procedures. These reviewed papers assessed a variety of criteria to determine the success of robotically-assisted pediatric urology and general surgical procedures, including operating time, success rate, complications, length of stay, cost and learning curve.
This paper provides insights on the advantages of the Senhance System with smaller pediatric patients as the 3-millimeter fully reusable instruments tend to be more precise. We are very pleased with the results of this paper as this is valuable data that can support the importance of receiving U.S. pediatric clearance. Other key studies include one which noted the short learning curve and low cost per procedure using Senhance for radical prostatectomy procedures in Taiwan and the second regarding colorectal procedures in Japan.
As we continue developing our list of clinical publications, we have also continued to leverage our growing real-world clinical data through our clinical registry. Our TRUST registry, the industry’s largest robotic-assisted laparoscopic registry, continues to grow in size and scale. We remain focused on leveraging the data accumulated to facilitate studies and publications, which highlight the real-world benefits of Senhance.
As we have mentioned in the past, one of our focuses is providing surgeons the opportunity to participate in training sessions at one of our six centers located in Europe, the United States and Japan. We continue to work to drive increased volumes of surgeons through these centers on a regular basis. We have implemented a variety of tools to create a holistic training environment focused on getting surgeons up to speed and performing Senhance procedures quickly. These tools include the Asensus Surgical Learning Academy, which is our distance learning portal that provides surgeons with the access to abundant interactive educational resources throughout the Senhance learning pathway such as extensive interactive online training modules that build foundational knowledge of the Senhance System in preparation for hands-on training, procedural mapping guides that accelerate learning through knowledge sharing by Senhance clinical experts, quick reference guides to increase operating room efficiency, and a surgical video archive of Senhance procedures for continuing education.
Other tools that we are leveraging are our mobile surgical simulator, which is designed to enhance surgeon skill level with the Senhance interface in a simulated environment; Senhance Connect, a multisite digital video collaboration solution that enables virtual real-time best practice sharing amongst Senhance users from the operating room; and global training centers located in the U.S., Europe and Japan. We believe these tools in aggregate will allow us to continue to facilitate the adoption of Senhance by surgeons across the globe and provide clinical intelligence through our Performance-Guided Surgery framework to assist surgeons in performing consistently superior surgery. The next segment of our market development effort is the expansion of our global footprint, including the growth of our installed base, the acceleration of procedure volumes and the increase in the number of foundational sites.
Beginning with new program initiations. The second quarter was again challenging as we continue to experience headwinds as a result of the conflict in Eastern Europe as well as ongoing supply chain issues. As a result of the conflict in Ukraine and surrounding areas, we made the decision to refocus our commercial efforts on other regions, in particular, Western Europe, and have seen positive traction since making that shift. We installed one system during the quarter at University Hospital Tübingen in Germany. In addition to that installation, we also have signed agreements with two hospitals, both of which we expect to be installed in the coming months. This includes one system that was purchased by our distribution partner in the month of August and the system set to be installed in the CIS region in the near-term. We are seeing positive momentum in the build-out of our pipeline, in particular, in Europe and Japan, and continue to work to generate demand for the platform globally.
Given the macro headwinds at play and the impact they had on our first half performance, we have revisited our expectations for new system initiations globally and now expect 8 to 10 for the year. Despite this near-term volatility caused by a confluence of factors, we remain confident in our ability to drive the adoption of Senhance on a global scale over the long-term.
Now turning to procedure volumes. We have continued to see very strong procedure volume trends, up 34% over the second quarter of 2021 and 3% sequentially. With over 670 procedures performed in the quarter, the total for the first half of the year is over 1,300 procedures. Volume trends were strongest in Europe and overall general surgery had the most procedures throughout all geographies. Despite macro headwinds in the U.S., we were pleased to see sequential growth with impressive utilization trends.
We have also seen some of our systems reach significant milestones this quarter. At Evangelisches Krankenhaus in Wesel, Germany, Dr. Vivianda Menke and Dr. Olaf Hansen hit significant strong procedure volume milestones, completing over 500 general and colorectal cases. We also saw a number of surgeons and hospitals hit the 100 procedure mark, including Dr. Steven McCarus at AdventHealth in Winter Park in Florida, and Saitama University Medical Center reached their 100th colorectal case.
Turning to the expansion of our product portfolio. We are excited to build upon the accomplishments and reach additional regulatory milestones that will further develop the Senhance System and broaden its applicability. We continue to expect the commercial launch of 5-millimeter Articulating Instruments in the second half of this year, which is currently a pilot launch in the U.S. and Europe.
Articulating Instruments offer better access to difficult to reach or around the corner areas of the anatomy by providing two additional degrees of freedom. By allowing surgeons to manipulate the tip of the instrument in a wrist-like manner, they are often more easily able to perform certain tasks while at the same time, reducing the pressure placed on the port where the instrument is inserted into the surgical field. By offering Articulated Instruments, the applicability of Senhance is expanded to those surgeons who view Articulating Instruments as critical.
In the second half of 2022, we also expect to submit our 510(k) application for pediatric clearance in the U.S., following strong early clinical utilization in Europe and increasing demand from U.S. surgeons. This will broaden the applicability of the Senhance Systems’ unique combination of 3-millimeter instrumentation with 5-millimeter camera scope combined with haptic feedback to benefit more patients.
We continue to expand the utilization and applicability of the Intelligent Surgical Unit, or ISU, globally and expect to receive CE Mark approval for expanded machine mission capabilities in Europe in late 2022. The initial features of the ISU enable machine mission-driven control of the camera for a surgeon by responding to commands and recognizing certain objects and locations in the surgical field and allow a surgeon to change the visualized field of view using the movement of their instruments.
The newest ISU features expanded upon these capabilities and introduced more advanced features including real-time 3D measurement, digital tagging, image enhancement, and enhanced camera control based on real-time data from anatomical structures while performing surgery. This is the first time any of these features have been made available in soft tissue abdominal surgery and can ultimately allow surgeons to perform better, more predictable surgery regardless of their skill level or experience.
In order to harness the power of data, we are continuing to invest in the development of our cloud and data management capabilities. We are currently partnering with hospitals and other institutions to work towards the compilation of a critical mass of surgical data, aided by the rollout of the ISU across our installed base, which will provide a tremendous amount of surgical insight.
The build-out of this dataset has been somewhat slowed as a result of supply chain delays, which have delayed the expanded use of the ISU. The build-out of this capability remains a top priority, and we are continuing to push to roll out the ISU as quickly as possible. We remain incredibly excited about the future of Asensus and the opportunity that exists for Senhance to revolutionize how soft tissue abdominal surgery is performed. Despite the challenging macro environment, we continue to make good progress towards the development of Performance-Guided Surgery and its advanced intelligence capabilities while at the same time accelerating the utilization of Senhance on a daily basis across the globe.
I want to thank our employees whose dedication and ingenuity have allowed us to drive meaningful innovation and ultimately deliver better outcomes for surgeons, hospitals and patients.
With that, I would like to open the line for questions.
Question-and-Answer Session
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.
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Asensus Surgical, Inc. (ASXC) CEO Anthony Fernando on Q2 2022 Results - Earnings Call Transcript