TransEnterix Posts Another Disappointing Earnings Report
Posted on August 08, 2019 by Medtech[y] Staff
TransEnterix stock was down almost 33% in after-hours trading after announcing another disappointing earnings report. Since the back half of 2018, the hope from investors was that the company would show an acceleration in capital sales. It didn't happen then and it hasn't happened up to this point in 2019, which is why investor confidence appears to be at an all-time low for the company.
The company posted Q2 revenue of $3.6 million on estimates of $5.03 million. When digging into the revenue, the performance was even lighter than it appears on the surface as $1.3 million came from a system that was sold in 2017, with TransEnterix not recognizing revenue until this quarter when surgery at the site began. The lone system sale was made to an end-user hospital in the EMEA region.
"We're disappointed with our commercial results during the quarter having come in below our guidance. And we stated before, capital sales are inherently difficult to predict, particularly, when working with a developing pipeline. We continue to feel that we're putting in place a solid foundation to drive improved performance in the back half of the year. However, we understand that we need to provide stronger and more consistent commercial results to regain investor confidence," said TransEnterix CEO Todd Pope.
$TRXC very disappointing. Indefensible. Sure sales are lumpy but badly missed guidance two quarters in a row raises serious questions about management’s ability to execute. Last option is a partnership/buyout.— TheWallStreetFox, CMT (@TheWallStFox) August 7, 2019
While the company did receive Japanese regulatory approval of Senhance, as well as broad Japanese reimbursement for 98 different procedures during the quarter, it's a fair question to ask what will encourage Japanese surgeons and hospitals to purchase a Senhance system when they aren't even selling in the largest medical device country in the world.
As we've mentioned on several occasions, surgeons and hospitals from outside the U.S.(OUS) look to the equipment and procedures that are being purchased and utilized within the U.S. and use that information for their buying criteria and operating techniques. One obvious way to see this in action is to go to one of the hundred surgeon specialty meetings each year and add up the amount of international doctors in attendance. For many meetings, the international attendees outnumber the domestic ones. Those doctors come here trying to understand what's happening in the U.S.
TransEnterix needs to get hospitals and surgeons on board quickly or their time may run out. However, it does appear Pope and team understand the where the focus needs to be and where they've fallen short as a management team and company.
$TRXC the conference call had plenty of negatives and a few positives. The fact that they are realizing their mistakes, learning from them and pivoting is encouraging. But until they put up the numbers and regain investor confidence, it’s a dud.— TheWallStreetFox, CMT (@TheWallStFox) August 7, 2019
One of the main positives from the quarter come from the AutoLap asset sale and equity sale which brought in a total of $47 million.
“While we were disappointed with our system sales in the quarter, we are encouraged by our operational accomplishments including the monetization of the AutoLap assets and achievement of Japanese regulatory approval and broad reimbursement well ahead of our expectations,” said TransEnterix CEO Todd Pope. “We are focused on improving commercial execution to drive global system sales in the second half of the year.”
Additionally, the company did achieve $560k in instrument and accessories, and $342k in services. While the business is dependent on selling Senhance systems, there is a significant razor/razor blade component to the business. The more procedures being done, the more residual revenue the company will generate. Yes, system sales provide a significant capital infusion during a quarter but those systems need to be used on a regular basis in the long-run. Otherwise there is no hope for survival for any medical device company, let alone TransEnterix.
Other important quarterly highlights include total net operating expenses were $22.2 million, as compared to $18.5 million in the three months ended June 30, 2018.The net loss was $20.2 million, or $0.09 per basic share, as compared to a net loss of $34.2 million, or $0.17 per basic share, in the three months ended June 30, 2018.
TransEnterix also had cash and cash equivalents, restricted cash and short term investments of approximately $34.0 million as of June 30, 2019. The Company believes that existing cash and short term investments and the expected proceeds from the AutoLap transaction are sufficient to support the business into mid-2020.
Todd Pope and team seem to understand what it's going to take in order for the company to get to a point of sustainability. Can they execute fast enough, generating enough revenue so they can hire out a full sales team that can compete with Intuitive Surgical and some of the other companies who are gearing up to introduce robotic surgical systems in the next two years? That window is slowly closing. Maybe they need to consider hiring reps because 15 isn't going to do it. But that discussion is for another post.