Earnings call: Asensus Surgical Reports Q3 2023 Results, Announces Key Partnerships and Future Plans

Asensus Surgical Inc. disclosed its third quarter financial and operating results on November 14, 2023, with a reported revenue of $1.1 million, a decline from $2.6 million in the same period last year. The company’s total operating expenses stood at $18.5 million, resulting in a net loss of $18.3 million, or $0.07 per share. Despite the financial setback, the company achieved significant milestones, including key partnerships and system advancements.

Key takeaways from the call:

• Asensus Surgical finalized a manufacturing partnership for its upcoming LUNA surgical system and partnered with a graphics hardware provider to enhance the capabilities of its ISU.
• The company remains focused on expanding the adoption of its Senhance surgical system, increasing utilization, advancing clinical evidence, refining its portfolio, and launching the LUNA system.
• Asensus Surgical published four clinical papers during the quarter, revealing the performance of Senhance in comparison to other systems.
• The company reported a 17% growth in procedures year-to-date and expanded its clinical registry to include data from over 3,000 patients.
• Asensus Surgical initiated new programs with various hospitals across Japan, the US, Germany, and the Commonwealth of Independent States region.
• The company announced collaborations with Flex (NASDAQ:), NVIDIA (NASDAQ:), and Google (NASDAQ:) to enhance its products and capabilities.
• Asensus Surgical completed a registered direct offering in July, raising approximately $10 million in gross proceeds. The company had cash, cash equivalents, and short-term investments of approximately $33.1 million as of September 30, 2023, and expects its cash runway to extend through the late second quarter of 2024.
• The company’s timeline for the LUNA program remains on track, with full system integration and testing expected to be completed by the end of the fourth quarter of 2023.

During the earnings call, Asensus Surgical also announced its collaboration with NVIDIA’s AI computing platform, Holoscan, to develop digital surgical solutions. It highlighted its collaboration with Google in data collection and analysis, integrating Google’s machine learning tools and secure cloud data architecture with Asensus’s surgery framework. The company is also in discussions with Karl Storz and plans to provide an update once an agreement is reached.

CEO Anthony Fernando stated that the announcement of Mayo Clinic adopting their system has generated increased interest, particularly from pediatric institutions. The company is actively engaged in conversations with multiple hospitals in the US for potential partnerships. Asensus partnered with Flex for the manufacturing of their LUNA platform, leveraging Flex’s expertise in medical device manufacturing and its extensive supply chain network.

InvestingPro Insights

In line with the latest data from InvestingPro, as of Q2 2023, Asensus Surgical, despite holding more cash than debt on its balance sheet, has been quickly burning through cash. This is evident in the company’s reported revenue of $1.1 million, a decline from $2.6 million in the same period last year. The company’s market cap stands at 62.01M USD with a negative P/E ratio of -0.63, indicating that the company is not profitable.

InvestingPro Tips suggest that the company yields a low return on invested capital and suffers from weak gross profit margins, which is supported by the reported gross profit margin of -79.6% in Q2 2023. These factors, coupled with the company’s stock price volatility, are important considerations for potential investors.

InvestingPro provides an abundance of additional tips and data metrics for Asensus Surgical, offering a comprehensive analysis for anyone interested in the company’s financial health and investment potential.

Full transcript – ASXC Q3 2023:

Operator: Good afternoon and welcome to the Asensus Surgical Inc. Third Quarter Financial and Operating Result Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, November 14, 2023. I would now like to turn the conference over to Mark Klausner from Westwicke Partners. Please go ahead.

Mark Klausner: Good afternoon everyone and thank you for joining us for the Asensus Surgical third quarter 2023 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 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 2022 Form 10-K filed in March 2023 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 share attributable to common stockholders. Management believes that these non-GAAP financial measures taken in conjunction with US 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 US 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. With that, it’s 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 everyone for joining us today. To kick off, I’ll provide an overview of our recent performance and key achievements. After which, Shameze will detail our financial results. Next, I’ll update you on our priorities for the remainder of 2023 before we open the line for questions. Before I dive into the quarterly review, I would like to take a moment to acknowledge the recent events in Israel. The attacks and escalating conflict there have deeply affected us all. I extended our deepest sympathies to those who have suffered losses or injuries and to all impacted by the violence. Our thoughts and support are with our team in Israel and their families during this time. We are proud of the incredible care and support they’ve shown on one another with some of our own team members and their spouses having been called to military service. I would like to say thank you to our team in Israel for managing through this trying time. Turning to an overview of the third quarter. We are pleased to share that we’ve reached significant milestones recently. One of the key achievements, including finalizing our advanced manufacturing partnership for our upcoming LUNA surgical system, ensuring a reliable manufacturing process for this innovative technology. Additionally, we partnered with a graphics hardware provider to enhance the capabilities of our ISU, which will contribute to improved performance. Our ongoing focus remains on expanding the adoption of Senhance, increasing utilization, advancing our clinical evidence, refining our portfolio to enhance Senhance’s capabilities, and deliver the value of performance guided surgery through the launch of LUNA. During the quarter, four clinical papers were published. Two of which I want to discuss. These studies highlight the promising performance of Senhance in comparison to the current market-leading robotic system and traditional laparoscopy in various procedures. The first study from Taiwan reveals cost advantages of Senhance with shorter operative times and comparable patient outcomes versus the current market-leading robotic system. The second study emphasizes Senhance’s comparable outcomes to laparoscopic procedures with the added benefit of shorter hospital stays. Incision to soother [ph] times also showed a close match between Senhance and laparoscopy. More information on all the papers published can be found on our website. Procedure volumes continue to be an important input to develop and improve our digital surgery capabilities. Year-to-date, our performance reflects a strong 17% growth in procedures. During the third quarter, we saw 2% year-over-year growth and over 760 Senhance procedures performed across a variety of specialties globally. Our machine learning engine improves as we continue to gather surgical data, enabling us to offer useful clinical intelligence to surgeons via the ISU. Another positive aspect of increased procedure volumes is the expansion of our clinical registry. As of this call, our TRUST registry has grown to include data from over 3,000 patients with cases across gynecology, general surgery, and urology. This growth signifies a notable step forward in our efforts to accumulate valuable patient data and to help inform surgical decision-making, and ultimately, help improve patient care. The Senhance clinical registry is one-of-a-kind collection of data and the only registry focused on digital laparoscopy. The TRUST registry is a multi-specialty clinical registry that is investigator-led and managed by a third-party clinical research organization with full ethics committee approval at each institution. The primary goal of this registry is to create a collection of 60-plus intraoperative data points and 12 months postoperative follow-up data. This information we serve as a foundation for a greater number of high-quality clinical publications and play a vital role in advancing our market development strategy. Moving to new program initiations. We initiated two new Senhance programs in the quarter ended September 30th, 2023. In August, we initiated a program with First Towakai Hospital in Japan. The Senhance system is being used in their urology and gynecology centers and gastroenterology department. We are seeing ongoing expansion in Japan, solidifying agreements with highly regarded institutions. The encouraging progress in Japan is a testament to our efforts and we are enthusiastic about further driving adoption in the region. The second was Mayo Clinic Hospital in Saint Marys Campus, the leading United States-based hospital that was announced in July. This marks an important milestone as this is the first system to be exclusively utilized by pediatric surgeons at a US-based hospital. The Senhance system is well-suited for pediatric procedures given a mix of unique features like augmented intelligence, machine learning, haptic feedback, eye tracking camera control, 3D visualization, and most importantly, specialized 3 and 5-millimeter instruments. Subsequent to the end of the quarter, we initiated two additional Senhance programs. The first was Klinikum Idar-Oberstein Hospital in Germany to be used by their clinic for General, Visceral, and Minimally Invasive Surgery. The second system was sold to the company’s distribution partner and will be placed in a pediatric hospital in the commonwealth of independent states region. In March of this year, we expanded our US pediatric indication, complementing our existing regulatory approvals in Europe and Japan. This expansion allowed us to engage with leading pediatric surgeons, especially those operating at top children’s hospitals who have recognized the distinct advantages of Senhance for younger patients. The system smaller instruments, a digital fulcrum to minimize tissue trauma and haptic feedback for precise touch and feel have been particularly appreciated by surgeons as they enable the preservation of the benefits of minimally-invasive surgery for delicate pediatric tissues. As we discussed on our last call, July marked an important milestone for pediatric surgeons from around the world to converge at the first joint meeting of the European Society of Pediatric Endoscopic Surgeons and International Pediatric Endosurgery Group societies in Sorrento, Italy. Asensus played a prominent role delivering an impactful robotic master class, highlighting the integration of cognitive science, data science, and robotics, providing attendees with valuable insights on the application of robotics in pediatrics as well as the opportunity to gain hands-on experience. With hundreds of customer interactions at this surgical forum, Asensus went on to those potential customers at our headquarters in Research Triangle Park and in Milan as well as partner with leading children hospitals to execute awareness events that engage these leaders in considering how to incorporate Senhance into their clinical programs. With pediatric surgeons and thought leaders, recognizing Asensus, unique system design, which not only preserves minimally invasive surgery, but goes beyond by advancing laparoscopy and robotics with digital surgery solutions, the interest in Senhance and the ISU for pediatric applications continues to grow, and we are committed to meeting this rising demand in the pediatric market. I’d also like to highlight our recently launched eBook titled Augmented Intelligence, The answer to Surgery’s Shortcomings, which has generated positive responses from the medical community. The eBook explores how performance guided surgery can address surgical variability providing operational advantages for surgeons, construction advancements for hospitals, and improved patient outcomes. It highlights the potential of technology adoption to attract and nurture talent in the medical field, ultimately enhancing hospital reputation. The eBook can be found on our website or LinkedIn, and I encourage everyone to read it. Now, taking a look at the portfolio development front. Starting with the recent announced agreement with Flex for LUNA system manufacturing. Under this agreement, Flex provide a range of design and advanced manufacturing services across LUNA’s product lifecycle to enable us to deliver the LUNA platform at scale. Flex’s proven track record of delivering complex electromechanical systems across diverse industries and deep understanding of the complex requirements for medical devices, will enable us to accelerate time-to-market for our LUNA platform. Also Flex’s focused portfolio of advanced manufacturing capabilities and trusted supply chain network will be instrumental in scaling LUNA globally. In September, we announced a collaboration with NVIDIA to enhance the capabilities of the ISU. By directly collaborating on NVIDIA’s advanced tools, we aim to refine the ISU’s augmented intelligence features and further develop advanced features based on surgeon feedback. The ISU already powered by NVIDIA’s hardware has been providing real-time support to surgeons since 2021. This announced collaboration will expand the relationship to facilitate shared access to product roadmaps. We are exploring innovative models for the development and deployment of digital surgical solutions, leveraging NVIDIA’s AI computing platform, Holoscan. This collaboration highlights the potential for improved decision-making in surgical procedures through the application of advanced AI tools, aligning the goals of both companies and highlighting the growing importance of data-driven technologies that support surgeons and advanced surgery. With an overarching focus on data, our collaboration with Google also holds immense value, particularly in our joint effort in data collection and analysis. This partnering integrates Google’s cutting-edge machine learning tools and secure cloud data architecture with our performance-guided surgery framework. By harnessing the data gathered, through the ISU in tandem with Google Cloud’s leading technology and providing surgeons with real-time intraoperative clinical intelligence, we have the potential to achieve superior outcomes for patients. Regarding Karl Storz, our discussions are ongoing. Both organizations are dedicated to expediting the finalization of an agreement and we will provide an update once these conversations conclude. To wrap-up, I’m pleased with the progress we’ve achieved in the third quarter and continue to build on the groundwork for sustained success. Now, I’ll pass the floor to Shameze for a financial update.

Shameze Rampertab: Thanks Anthony. Turning to the third quarter. For the three months ended September 30th, 2023, the company reported revenue of $1.1 million as compared to revenue of $2.6 million in the three months ended September 30th, 2022. Revenue in the third quarter of 2023 included $0.5 million in lease revenue, $0.3 million in instruments and accessories, and $0.3 million in services. For the three months ended September 30th, 2023, total operating expenses were $18.5 million as compared to $17.2 million in the three months ended September 30th, 2022. For the three months ended September 30th, 2023, net loss attributable to common stockholders was $18.3 million or $0.07 per share as compared to a net loss attributable to common stockholders of $18.9 million or $0.08 per share in the three months ended September 30th, 2022. For the three months ended September 30th, 2023, the adjusted net loss attributable to common stockholders was $15.6 million or $0.06 per share as compared to an adjusted net loss of $16.9 million or $0.07 per share in the three months ended September 30th, 2022. Adjusted net loss is GAAP net loss adjusted for the following items; amortization of intangible assets, change in fair value of contingent consideration, 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. Reconciliations from GAAP to non-GAAP measures can be found in our earnings release. Turning to the balance sheet. In July, we completed a registered direct offering, bringing in gross proceeds of approximately $10 million. We plan to allocate these funds to reinforce our working capital and contribute to research and development. The company had cash, cash equivalents, and short-term investments, excluding restricted cash of approximately $33.1 million as of September 30th, 2023. Based on the recent financing and our current operating plan, we project our cash runway has been extended through late second quarter of 2024. I’ll turn the call back over to Anthony.

Anthony Fernando: Thank you, Shameze. As we look ahead, let’s delve into what lies on the horizon for Asensus and what you can anticipate in the coming months. With regards to the LUNA program, our timeline remains on track, and we expect to complete full system integration and testing and the preclinical evaluation by the end of the fourth quarter this year. We will freeze the systems design in Q1 2024, conduct verification and validation testing, and ramp-up pilot manufacturing and prepare for regulatory submission. In terms of our LUNA go-to-market strategy, I’d like to reiterate our two key advantages. Firstly, we’ve established a clear regulatory pathway, for LUNA. Based on our communications with the FDA, in-house regulatory expertise, and our track record with successful submissions for Senhance, we anticipate leveraging the time and cost-effective traditional 510(k) pathway in the US as opposed to a more rigorous de novo pathway. Second, LUNA’s innovative economic model, coupled with its clinical performance is poised to drive commercial adoption. Beyond our current leasing and capital purchase options, we are exploring a subscription-based model for hospitals. Turning to our ongoing ISU development efforts. We have one milestone for the remainder of the year, the ramp-up of manufacturing for the future ISU, which we believe we will have by the end of the fourth quarter. Regarding Senhance initiations, we are refining our expectations to initiate eight to 10 new programs in 2023, down from 10% to 12%. This adjustment is in response to the evolving capital environment. We are taking into consideration factors like market trends and tightened budget considerations. We believe this refined outlook provides a balanced approach that aligns with the current landscape. In conclusion, we are poised for significant milestones in the coming quarters. With the LUNA program’s timeline remaining steady, our ongoing focus remains on expanding the adoption of Senhance, increasing utilization, advancing our clinical evidence, and advancing our digital capabilities. I want to thank our global team for their hard work and dedication to make this truly novel technologies a reality. Our commitment to advancing surgical technology and delivering exceptional outcomes for patients remains strong. With that, I would like to open the line for question.

Operator: Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. [Operator Instructions] Your first question comes from the line of Swayampakula Ramakanth from H.C. Wainwright. Your line is now open.

Swayampakula Ramakanth: Thank you. This is RK from H.C. Wainwright. Good afternoon Anthony and Shameze. Hope you guys are doing good.

Anthony Fernando: Hey RK.

Swayampakula Ramakanth: So, just turn off with the installations from where you ended the conversation, so you will have currently five installations so far for the year. And with less than four or five weeks of business weeks, what gives you confidence that you can get three installations done before ending the year?

Anthony Fernando: Thanks for the question, RK. I mean, we are quite bullish about the forecast that we put out. Again, these are already pipeline accounts and we’ve been working through some of these transactions over the months during Q3 and into Q4. So, I think, therefore, for most of these pipeline accounts, there are a few more steps in the process. And so far, they are all tracking to be completed before the end of the fourth quarter. Time is short, but we feel pretty good about getting to the eight to 10 number from where we are.

Swayampakula Ramakanth: Very good. In terms of procedures, it’s nice to see that cadence of growth in terms of the procedures itself. But is there a way for you to kind of amplify that into what sort of procedures you’re seeing? Are there certain kinds of procedures, which are being performed on a regular basis? And that — so that we understand where the utility is of this Senhance system itself. And also, any commentary at all from the folks at Mayo Clinic in the pediatric hospital?

Anthony Fernando: Yes. Okay. So, I think when it comes to procedure mix, we have not seen a big change per se. General surgery kind of leads the charge with gynecology following, and then urology being a third specialty. And this is pretty — it’s been relatively consistent through the year and even moving from last year. I think the one piece that’s added on to it and kind of increasing or growing this year is pediatric because we’ve seen increased pediatric use in Europe. And then also with Mayo clinic starting their program, that’s going extremely well. And we are — the case numbers are increasing week-over-week with them scheduling more cases. So, we are still at an early point. We have more than one-third surgeon trained there. And I think one or two more to be trained, but procedure numbers are growing, and they are doing quite well in getting started in — at the Mayo Clinic.

Swayampakula Ramakanth: Very good. And then in terms of the Japanese installation, in your commentary, you were saying how comfortable you are with the growth and where the adoption is going in terms of in Japan. How much of the market is still left because I think a couple of years ago, Japan, kind of trumped in terms of your installations of device? And then this year, we have not seen as many. So, what are your thoughts on that? And do you think you need to add more resources in Japan to make sure that you can fully utilize that opportunity?

Anthony Fernando: So, RK, with respect to Japan, year-to-date, we’ve done the two systems and we have some pipeline to close there between now and year-end as well. I think the thing is trying to find the right institutions who can perform cases, demonstrate really good utility, and then be able to publish and share their experiences. So, that’s really the focus that we really want to drive in Japan to make sure that we have a very robust foundation of procedures and institutions and build a nice KOL network who can speak about performance and Senhance performance so that it will become even simpler for us to expand. I mean the team in Japan is doing — for the size of team, they’re doing extremely well. And even looking at procedure growth, I think Japan this year is really having a record year in terms of procedure volume growth compared to last year. So, that’s the reason why we feel really good about how things are progressing. In Japan, it’s growing, and you’ve seen the two, and we are hoping to be able to close the year with some additional sites in Japan this year.

Swayampakula Ramakanth: And the last question for me. You made some commentary on ongoing discussions with Karl Storz, what sort of discussions are we talking about? Because I talked — there was one — I know you had like two or three different conversations going on with them. And I’m just trying to understand which conversation is this about?

Anthony Fernando: I think it’s — I wouldn’t say there’s a drastic difference in the conversation. It’s just trying to — I mean, it becomes very complicated given the feel that we are in and also looking at what we intend to do in the future and our portfolio and road map and what they are intending to do. So, — we are still talking about visualization and even potentially the digital element of it and try to find the right balance in terms of what the right relationship might look like and be mutually beneficial.

Swayampakula Ramakanth: Thank you. Thanks for taking all my questions.

Anthony Fernando: Thank you, RK.

Operator: The final question comes from the line of Ross Osborn from Cantor Fitzgerald. Your line is now open.

Ross Osborn: Hey guys. Thanks for taking the questions. So, following the announcement that Mayo has adopt your system, have you seen an increase in inbound interest given the reputation, particularly from a pediatric stands?

Anthony Fernando: Hey Ross, great question. The simple answer is yes. I think after we announced Mayo and also some of the pediatric meetings that we attended in Europe. And then subsequent, there was another — there’s a smaller meeting in Texas. All of that have generated really good interest. So, we continue to have discussions with multiple hospitals in the US, primarily focused on pediatrics and having a leading hospital here like Mayo Clinic, already using the system definitely is kind of validates that thesis. So, that has opened some good opportunities and we are pretty active in having conversations with other pediatric institutions.

Ross Osborn: Great. Glad to hear it. And then turning to volumes and I realized volumes are up year-to-date relative to the last year. But could you provide more color on what drove procedure volumes down to quarterly or for the year in your view?

Anthony Fernando: Yes, Ross, I think primarily, the slowdown came from Europe. And the European between the holidays and summer breaks, et cetera, that had a contribution to that which I think was the primary player for the reason why we didn’t see a quarter-over-quarter growth. And also in the US, we didn’t see as much growth compared to what we saw last year. That was the primary reason for the quarter. But on an annualized basis, I think 17% is where we are and we are hoping to keep driving that number up in the fourth quarter as well.

Ross Osborn: Okay, got it. And then lastly, could you provide a little bit of background on Flex and what drove you to partner with them for LUNA?

Anthony Fernando: Yes, Ross. So, I think the LUNA platform is a relatively complex system. And for us, we’ve always tried to focus on what we are good at and really where we can add value. So, we understand the robotic space and the digital space and have very strong R&D regulatory capabilities to execute on that. And when it comes to manufacturing several years ago, probably about two, two and a half years ago, we came to the conclusion that it doesn’t make sense for us to deploy capital in a sense when there are specialists in the field like Flex who understand medical device, who have really extensive supply chain networks that can provide us really good cost in terms of procurement. So, with that, we started this dialogue almost two years ago and we’ve been working on multiple small projects with them, and that led to us trying to take a much bigger holistic view and say, okay, why don’t we work with you guys on the entire platform instead of the sub-assemblies or subcomponents that we’ve been talking about over the last two years, which led to this agreement where they will help us, and they will share their expertise, and we’ll collaborate on them ultimately taking over the full manufacturing where they are very well-suited to take this on.

Ross Osborn: Got it. Thanks for taking our questions.

Anthony Fernando: Thank you, Ross.

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

Anthony Fernando: Thank you, operator. Thanks again for joining us today and for your support of Asensus. We look forward to updating you on our next quarterly call. Thank you.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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