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spk02: Good afternoon, ladies and gentlemen, and welcome to the Census Surgical Inc. Third Quarter Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 14, 2023. I would now like to turn the conference over to Mark Klausner from Westwick Partners. Please go ahead.
spk06: Good afternoon, everyone, and thank you for joining us for the Ascensus 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 Shamiz 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. For a discussion of risks and uncertainties associated with the Ascensus 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 for 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 financial measures to compare our performance relative to forecast and strategic plans, to benchmark out 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. With that, it's my pleasure to turn the call over to Ascensus Surgical's President and Chief Executive Officer, Anthony Fernando.
spk03: 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 Shamish 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 ISRA. 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 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 an advanced manufacturing partnership for our upcoming lunar 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 suture 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 enhanced 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 Senhans 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-month post-operative follow-up data. This information will 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 Sennheis programs in the quarter ended September 30, 2023. In August, we initiated a program with First Tawakai Hospital in Japan. The Sennheis system is being used in their urology and gynecology centers and gastroenterology departments. 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, St. Mary's 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 U.S.-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 Ida-Aubenstein 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 U.S. 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 Senhans for younger patients. The system's 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. Ascensus played a prominent role delivering an impactful robotic masterclass 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, Ascensus went on to host 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 engaged these leaders in considering how to incorporate Senhance into their clinical programs. With pediatric surgeons and thought leaders recognizing Ascensus' 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 SennHands 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 e-book titled Augmented Intelligence, The Answer to Surgery Shortcoming, which has generated positive responses from the medical community. The e-book explores how performance-guided surgery can address surgical variability, providing operational advantages for surgeons, cost-efficient advancements for hospitals, and improved patient outcomes. It highlights the potential for technology adoption to attract and nurture talent in the medical field, ultimately enhancing hospital reputation. The e-book 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 lunar system manufacturing. Under this agreement, Flex will 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, Flexa's focused portfolio of advanced manufacturing capabilities and clustered 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 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 technologies and providing surgeons with real-time intraoperative clinical intelligence, we have the potential to achieve superior outcomes for patients. Regarding Carl Storch, 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.
spk05: Now I'll pass the floor to Shamice for a financial update.
spk07: 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 7 cents 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 30, 2022. For the three months ended September 30, 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 30, 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. Reconciliation 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 30, 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.
spk05: I'll turn the call back over to Anthony. Thank you, Shamish.
spk03: As we look ahead, let's delve into what lies on the horizon for our census 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 system's 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 are 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 510k pathway in the u.s as opposed to a more rigorous renovo 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 the 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 8 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 tightening budget considerations. We believe this refined outlook provides a balanced approach that aligns with the current landscape. In conclusion, we are fighting 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 these truly novel technologies a reality. Our commitment to advancing surgical technology and delivering exceptional outcome for patients remains strong.
spk05: With that, I would like to open the line for questions. Thank you.
spk02: Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star 2. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment please for your first question.
spk05: Your first question comes from the line of
spk02: Soyambakula Ramakant from HC Wainwright. Your line is now open.
spk01: Thank you. This is RK from HC Wainwright. Good afternoon, Anthony and Shanice. Hope you guys are doing good.
spk00: Hey, RK.
spk01: Yeah, so to start off, you know, with the installations, you know, from where you ended the conversation, So you 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?
spk03: 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.
spk01: 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, you know, are there certain kinds of procedures which are being performed on a regular basis and that, you know, so that we understand where the utility is of this enhanced system itself. And also any commentary at all from the folks at Mayo Clinic in the pediatric hospital.
spk03: Yeah, okay. So I think when it comes to procedure mix, we have not seen a big change per se. You know, 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 the case numbers are increasing week over week with them scheduling more cases. So we are still at an early stage We have more than one 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 at the Mayo Clinic.
spk01: 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 the 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, you know, to make sure that you can fully utilize that opportunity?
spk03: So, RK, with respect to Japan, you know, year to date we've done the two systems and, you know, 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 enhance 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.
spk01: And the last question from me, you made some commentary on ongoing discussions with call stores. What sort of discussions are we talking about? Because I thought 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?
spk03: 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 field that we are in and also looking at what we intend to do in the future and our portfolio and roadmap 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 ways the right balance in terms of what the right relationship might look like and be mutually beneficial.
spk01: Thank you.
spk05: Thanks for taking all my questions. Thank you, Ake.
spk02: The final question comes from the line of Ross Osborne from Cantor Fitzgerald. Your line is now open.
spk04: Hey, guys. Thanks for taking our questions. So following the announcement that Mayo has adopted your system, have you seen an increase in inbound interest given the reputation, particularly from a pediatric stance?
spk03: Hey, Ross. You know, 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 smaller meeting in Texas. All of that have generated really good interest, so we continue to have discussions with multiple hospitals in the U.S., primarily focused on pediatrics, and having a leading hospital here like Mayo Clinic already using the system definitely kind of validates that thesis. That has opened some good opportunities, and we are pretty active in having conversations with other pediatric institutions.
spk04: Great. Glad to hear it. And then turning to volumes, and I realize volumes are up year-to-date relative to last year, but could you provide more color on what drove procedure volumes down to a quarterly low for the year in your view?
spk03: Yeah, Ross, I think primarily the slowdown came from Europe. And the European, I think, between the holidays and summer breaks, etc., 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 U.S., 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.
spk04: Okay, got it. And then lastly, could you provide a little bit of background on FLAGS and what drove you to partner with them for LUNA?
spk03: Yeah, so I think, you know, the lunar 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, you know, 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 the 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 sub-components 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.
spk05: Got it. Thanks for taking our questions.
spk03: Thank you, Ross.
spk02: There are no further questions at this time. I will now have to call back to Anthony Fernando for closing remarks.
spk03: Thank you, operator. Thanks again for joining us today and for your support of our census. We look forward to updating you on our next quarterly call. Thank you.
spk02: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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