Stereotaxis, Inc. (STXS) Earnings Call Transcript & Summary

Good afternoon. Thank you for joining us for Stereo Texas second quarter 2026 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 this statement. At this time, all participants have been placed on 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 Seria Taxes. Please go ahead.

Thank you, operator, and good afternoon, everyone. On our last call, we discussed in detail the structural transformations taking place at Stereotaxis. The just celebrated particularly milestone rich period with regulatory approvals for a new robot, both therapeutic and diagnostic catheters and a digital surgery system. These products individually and collectively as a synergistic ecosystem create an attractive foundation for us to scale commercialization with reduced barriers to adoption and a much more attractive business model. During the second quarter, Seria Texas reached an important commercial inflection point, as our expanded product offering is now generating accelerating adoption. It is still just the initial green shoots of commercial success, but the early experience and feedback provides confidence in sustained progress. I'll discuss on today's call the primary areas of commercial progress, the feedback from the field, and our efforts to accelerate growth. I'll then share some additional updates on the robust pipeline of innovations that we continue to advance and that will drive a second wave of growth over the coming years. Kim will then share financial details for the quarter and we'll open the line for questions. A key area of focus in the second quarter was on the launch of MAGIC in the U.S. following FDA approval in the first quarter. While supply constrained and still just in the early adoption phase, that launch allows us to reach a multi-year high point in recurring revenue, which surpassed $6 million in the quarter, driven by over $1 million in robotic catheter revenue. Our robotic catheter revenue is scaling significantly in both the U.S. and Europe with nearly 300% sequential growth from the first to the second quarter. We are in the early phase of adoption of MAGIC, with about a dozen US sites receiving hospital approval to purchase the catheter and beginning procedures in the second quarter. several physicians sent me unprompted feedback as they started to use the catheter. One physician commented, quote, magic performs so much better than the old ablation catheter. Basically, you can more reliably target tissue and more effectively ablate the target tissue. It fundamentally changes the utility of the stereotaxis system more than doubling the value of having a robot. Another physician upon completing his first 10 procedures mentioned that he is, quote, loving it and that the catheter is improving his efficiency significantly with a more stable and more powerful catheter delivering rapid, effective ablations. Another physician, after his first day of procedures, mentioned, quote, wow, this catheter navigates well. You guys have something special. This feedback is highly encouraging. We have long known that the perception and value proposition of robotics in EP is only as good as the catheters available for use with the robot. Being tied to decades old catheter that did not benefit from continued innovation limited our potential. It is very satisfying to see the innovations we took from concept to commercial reality benefit critical patients with complex arrhythmias and the physicians that treat them. It gives us confidence that our efforts to reestablish and trajectory are off to a good start. We are continuing to methodically work through hospital approvals and initial launches of our robotic catheters across our US and European installed base. We expect the vast majority to shift from their historical dependency on J&J to our catheters within the next year. While working through the commercial friction of transitioning each customer, we are putting significant effort into ramping manufacturing of catheters. Sales remain supply constrained as we work to increase output with catheters still on backlog as we receive more orders from customers than the supply we receive from our contract manufacturer, Asipka. We are seeing methodical progress in increasing supply and are separately reaching key milestones in establishing supply redundancy. These support our expectations of sustained growth in our catheter revenue stream, and we're guiding for an approximate $1 million incremental step up in catheter revenue in each of the next couple quarters, with significantly more opportunities beyond that in 2027. Shifting now to system revenue. There are two primary items to discuss, synchrony and GenesisX. During the second quarter, we received FDA clearance for the synchrony system. As a reminder, Synchrony and Sync are our digital solutions that modernize the interventional surgical suite with enhanced workflow, remote connectivity, and smart AI capabilities. Synchrony serves as the cockpit for every robot, but also has an independent, much larger opportunity in non-robotic operating rooms. Shortly after receiving regulatory clearance, we received orders for multiple systems from several hospitals. We shipped the first few systems in the second quarter, have continued to ship systems in the third quarter, and there are already several systems in daily clinical use. They're performing well in the field, and we have a pipeline of software feature enhancements over the coming months and years that will continue to expand the value proposition. Without a significant dedicated sales effort, we are seeing organic interest that should support over $1 million in synchrony system revenue each quarter for the next few quarters. Most excitingly, there are several hospitals that are planning or considering standardizing their catheter labs on synchrony and syncs. While the current contribution of Synchrony is a nice but modest boost to revenue, the market opportunity is large and we intend to increase the sales effort as our pipeline builds and our manufacturing capacity matures. As these initial installs mature, they will also start to drive service contract and software as a service recurring revenue streams. Most impactful to system revenue over the coming few years will be scaling the adoption of our robotic technology. Robotic technology has significant real-world validation with over 150,000 patients treated at over 100 leading hospitals globally. said we still have just a fraction of a percent market share in our beachhead market of electrophysiology and no presence yet in the larger interventional cardiology and neurointerventional fields There is a market opportunity for many thousands of robotic systems across these markets. Our historical need to construct robotic labs was a major barrier to ever realizing that opportunity. GenesisX allows us to start envisioning a realistic way to scale robotic adoption much more significantly. Since we received regulatory clearance for Genesis X, we've been focused on how to ensure Genesis X can be installed alongside standard x-rays from leading manufacturers, removing the historical requirement that a robot only work with a specific modified x-ray. focused our initial commercial launch on the early adopters who will demonstrate that potential and serve as reference sites for broad compatibility with various x-rays. We are pleased that in addition to the previously announced Genesis X purchase in Europe, we're able to announce our first Genesis X purchase in the U.S. from an academic medical center. The system is expected to be installed this fall with a non-modified x-ray from one of the larger x-ray manufacturers. With that installation, we expect to declare formal compatibility with that manufacturer's x-ray. The construction of the new wing of the hospital in Europe, where Genesys is scheduled to be installed, also seems to be finalized. finally back on track with installation expected prior to year end. We're continuing to advance several additional Gen-Sachs sale or lease agreements that will further demonstrate the system being used in a variety of lab environments. With demonstration of Genesis X working reliably and compatibly with various x-rays, along with increased availability of Magic, we will initiate a more aggressive commercial launch of the technology. These initial green shoots of commercial success demonstrate the opportunity to build a highly successful business with our new product ecosystem. A proprietary CalFedder portfolio with its high margin razor blade business model has been central to our strategy and is now starting to become a material contributor. Accessibility of our robotic systems, such that we can reasonably scale to selling tens and then hundreds of robots a year, is critical if we are to impact medicine in the way we should. And we have now begun that journey and will demonstrate the robot's performance in daily clinical use in the near term. This progress does not come easy and I want to recognize and congratulate the many Stereo Texas team members who make it possible. always hurdles and unforeseen challenges in the effort to pioneer new advanced technologies and to implement them in the complex healthcare market and demanding operating room environment. As a lean team working on multiple significant transitions in tandem, they're demonstrating our ability to rise to the challenge. Thank you everyone who makes this possible. It is particularly exciting for me that we are driving this operational and commercial progress while not slowing down on a robust innovation effort. There is much going on in the background and we are energetically nurturing significant opportunities that will blossom over the next few years. Our efforts can be summarized in a few key categories. First, robot accessibility. advancing a future generation of the Genesis X robot that will be fully wireless, battery operated and mobile. Second, a more robust portfolio of EP catheter innovation. Most imminently here, we expect first human procedures with MAGIC and pulse field ablation before the end of this year. Third, a pipeline of robotic systems and interventional devices for the broader interventional cardiology and neurointerventional fields. We're advancing regulatory submissions and reviews for the Imagine family of magnetic guide catheters and guide wires that will be driven by Genesis X. Even more significantly, we closed the previously announced RoboCath acquisition in July and are energetically advancing their fully complementary and separate robotic system for endovascular device. navigation with a vision of offering a full ecosystem that enables remote, automated, and fully robotic treatment of stroke and cardiovascular disease. And fourth, AI efforts that will incorporate intelligent decision support features into synchrony and automation to our robotic platforms. We will discuss these further on future calls and as they mature, but there is still much room to advance our technology in exciting ways that improve and expand our clinical impact and commercial opportunity. Our vision for what Stereotaxis can and will accomplish is becoming increasingly clear and tangible. The key puzzle pieces have come together in a remarkable fashion, and we are enthusiastically advancing forward. Kim will now provide 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 afternoon, everyone. Revenue for the second quarter of 2026 totaled totaled $7.7 million. Revenue in the quarter declined year over year due to the lack of a robotic system delivery in the quarter, but increased sequentially from the first quarter due to significantly higher catheter revenue. system revenue of $1.5 million and recurring revenue of $6.2 million compared to $3 million and $5.8 million in the prior year's second quarter. System revenue in the current quarter includes modest revenue recognition from previously delivered Genesis systems and ancillary equipment and a notable contribution from the initial launch of synchrony. Recurring revenue in the quarter reflects a significant increase in revenue from our new portfolio of robotically navigated catheters, up 270% sequentially and 450% year-over-year. countered by general pressure on procedures as we transition away from Johnson & Johnson and manufacturing of our catheters. Gross margin for the second quarter of 2026 was 58% of revenue. Revenue Gross Margin was 66% and System Gross Margin was 29%. Gross margins for both recurring revenue and systems are impacted by low manufacturing volumes. While we expect margins to remain at these approximate levels over the next few quarters, significant opportunity for margin expansion in 2027 and 2028. Operating expenses in the quarter of $9.1 million included $2.5 million in non-cash charges for stock compensation expense, mark-to-market adjustment for acquisition-related contingent earn-out consideration, and amortization of acquired intangible assets. Excluding these non-cash charges, adjusted operating expenses were $6.6 million, consistent with a year-ago period when adjusting for a one-time employee retention tax credit received in the prior year. Operating loss and net loss in the second quarter of 2026 were $4.6 million and $4.5 million compared with $4 million and $3.8 million in the previous year. adjusted operating loss and adjusted net loss for the quarter, excluding non-cash charges, for $2.1 million and $2 million, compared with $1.4 million and $1.3 million in the previous year. Negative free cash flow for the second quarter was $3.7 million, consistent with the previous year. At June 30th, stereo taxes had cash and cash equivalents of $10.5 million and no debt. I will now hand the call back to David. Thank you, Kim.

We expect continued momentum in recurring revenue driven by increased manufacturing supply and expanded adoption of our robotic catheter portfolio. Recurring revenue is anticipated to grow to approximately $7 million in the third quarter and $8 million in the fourth quarter of this year, with significant room for continued momentum in 2027 and beyond. System revenue has been weak in the first half of this year, and we expect the second half to be stronger with approximately $3 million in each of the third and fourth quarters. From a financial perspective, we've maintained a lean operating budget while managing multiple product launches, ramping manufacturing, executing a strategic acquisition, and advancing a continued robust R&D effort. We are sensitive to subjecting investors to dilution and are confident we can advance our strategy unhindered. on our current budget. We are internally modeling to reach cash flow profitability in the first half of 2027. As our recurring revenue ramps, the majority of incremental revenue flows to operating profit. This revenue ramp can be accomplished with our existing team, and as we reach cash flow profitability, we will reinvest our profits in our commercial organization supporting accelerated growth.

We will now take your questions. Operator, can you please open the line to Q&A? Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And just a reminder, we ask that you please limit yourself to one question and one follow-up only. And after that, you can just simply join the queue again for more questions. Thank you. Your first question comes from Daniel Stotter from Citizens. Please go ahead.

Yes, great. Thanks for the questions. Just the first one on guidance. I appreciate the level of quarterly detail for recurring revenue and capital. I believe that puts the full year at about 35 million. I was hoping you could give us some more color on, one, your visibility, and two, your confidence in terms of hitting these numbers in the back half, and more broadly, what is assumed or contemplated in terms of catheter manufacturing improvements, as well as some capital adoption and installation timing as we think about these expectations. Thank you.

Hi Danny, good afternoon. Thanks for the questions. We thought that would be kind of a helpful way to share our expectations. The growth in recurring revenue is essentially all driven by adoption of our proprietary catheters, of kind of our robotically steered catheters. in any given quarter in terms of things like the MAPIT catheters and procedure volume. The third quarter is generally a seasonally weak quarter in terms of procedures just because of summer vacations, particularly in Europe, but also in the U.S. But generally, the growth is coming all from adoption of MAPIT. of Magic, Magic Sweep, and in Europe we have kind of other catheters that we're able to also kind of supplement those. And so that's where all the growth comes from. We are looking at it both from a demand perspective and from a supply perspective, but in things like the third and fourth quarter, it's really still driven essentially all by supply. And so we're still supply constrained. We have a backlog of catheter orders from customers, from many customers. And as we get catheters in from that supply, we're able to ship them They kind of very quickly took customers and recognized revenue. And so that's kind of the main factor in our determination. On the system side of things. It's a mix of both synchrony and robotic systems. On the synchrony side, we have been receiving, we have received orders that we've not yet filled. We're still receiving orders. I think the kind of the general guidance we gave in this call of around, you know, $1 million plus of synchrony, system sales per quarter seems very reasonable. And that obviously it's a lower ASP product in the near $200,000 range. And so that's something that we're shipping several of them out each quarter. On the system side, we are kind of the guidance kind of predicated on one system revenue recognition in each of the third and fourth quarter. We have obviously the GenZex sale, which we expect to recognize revenue in the third quarter and install shortly thereafter. But, you know, and then kind of we have still a backlog and we have kind of of additional genesis orders that can be recognized as they get delivered and installed. And so that's kind of where the guidance comes from.

I APPRECIATE THAT AND THANKS FOR THE COLOR. JUST THE NEXT ONE ON CASH FLOW. IT'S GREAT TO GET THAT UPDATE. BUT I WAS WONDERING IF YOU COULD JUST PARSE OUT A LITTLE BIT MORE IN FACT in terms of granular assumptions, in terms of, you know, is there a certain revenue level? Are there any other specific improvements on the operating lines in order to get there? Just wanted to double hit on this and get any more commentary in terms of the cashflow. It'd be great, thank you.

Sure. So I'll see if Kim wants to add to anything, but kind of from a very high level, right, we do scenario analyses all the time with conservative models, base models, and to kind of to evaluate the business and how we see it going. The main drivers of our business right now are the three that were discussed in the prepared remarks predominantly again the adoption of our robotically steered catheters and and then capital sales both through synchrony and through Genesis X when we look at the ramp in in catheter adoption given what we believe we will achieve from a manufacturing perspective and just the existing demand out there for those catheters, given the robotic procedures taking place at this time. I expect that our catheter innovations will improve utilization, but even without taking that into account. modest assumptions on the capital side and kind of essentially the same kind of you know one million a quarter or so of synchrony and you know system sales in line with our historical we get to break even in the first half of next year and cash flow profitability kind of at that point. And so it requires relatively modest assumptions to get to break even. We are obviously staying lean on our operating expenses given that, but that doesn't mean that we don't continue to invest in the things that are impactful. And so we're still advancing a broad R&D process. We're advancing some clinical studies. We're obviously doing all the operating work and commercial work to launch these new products. And so we think kind of with that balancing act of how to manage the expenses and then letting the recurring revenue start to kind of incrementally grow with that, with the availability of catheters, will be in a break-even position at the beginning, at the early periods of next year.

Great. Thanks so much. And just one quick one, and I'll squeeze in on magic catheters. Great to see the progress here on this side of the business. I know you mentioned last quarter that some of your customers were seeing revenue per procedure above $5,000, even up to $8,000. So I just wanted to ask on these dynamics, are you seeing that to continue in some of the early accounts or just any other trends you're seeing would be fantastic? Thank you.

Sure. So yes, obviously, kind of the baseline when someone is adopting Magic is that they're using our Quick Cast device that's a historical disposable device we've been selling for 20 years. plus now a magic catheter, one of our catheters. And they can also then add to that if they want a robotic high density mapping catheter or other diagnostic catheters that we are now able to supply. And in the US, our pricing is extremely consistent across sites. And so that number of, you know, in the five to eight plus thousand dollar range is a very consistent ASP we're receiving per procedure for the disposables used in a procedure. And in other geographies, it varies depending on the country. And so there's a tip and typically in Europe, it's at lower levels. but that's kind of the level that you quoted were the levels in the U.S.

Great. Thanks for the questions and congrats on the progress.

Thank you very much. Your next question comes from Frank Takinen from Lake Street Capital Markets. Please go ahead.