Greetings and welcome to MRI Interventions, Inc. Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Comments made on this call may include statements that are forward-looking within the meaning of securities laws.
These forward-looking statements may include, without limitation, statements related to anticipated industry trends, the company’s plans, prospects and strategies both preliminary and projected and management’s expectations, beliefs, estimates or projections regarding future results of operations. Actual results or trends could differ materially.
The company undertakes no obligation to revise forward-looking statements for new information or future events.
For more information, please refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019 both of which have been filed with Securities and Exchange Commission and the company’s quarterly report on Form 10-Q for the quarter ended June 30, 2019, which the company intends to file with the Securities and Exchange Commission on or before August 14, 2019.
All of the company’s filings maybe obtained from the SEC or the company’s website at www.mriinterventions.com. I will now turn the call over to Joe Burnett, Chief Executive Officer. Please go ahead..
Good afternoon, everyone and welcome to our Q2 2019 earnings call. With me on today’s call is our Chief Financial Officer, Hal Hurwitz. As always, we thank you for your continued support as our team works together everyday to improve the quality of life for patients battling some of the most debilitating neurological disorders.
On the last quarterly call, we discussed our strong start to the 2019 fiscal year with record quarterly revenue in Q1 and continued progress in each of our four growth pillars. I am excited to share with you today that the momentum has clearly carried over into the second quarter with new records for both revenue and supported case volume.
This was highlighted by 58% growth over prior year revenue and 197 cases covered.
In addition to our operational performance, the second quarter saw the achievement of three significant financial milestones, including the strategic investment of $7.5 million into the company, the retirement of $2 million of senior notes and the uplift to the NYSE American Exchange effective July 3.
All of these events were strategic goals of the company at the very start of the year and we appreciate the actions of our team and the support of our investor community to be able to achieve them all in the first half of the year.
At this point, I would like to turn the call over to Hal for a few minutes to highlight our operating results for the second quarter of 2019, after which I will provide some additional detail on our activities in the quarter that support our four pillar growth strategy.
Hal?.
Thank you, Joe. For the second quarter ended June 30, 2019, total revenues were a record $2.6 million compared with a prior record of $2.5 million for the first quarter of 2019. Revenues reflected an increase of 58% from $1.6 million for the same period in 2018.
Breaking that down a bit to the underlying product areas, functional neurosurgery revenues increased 46% to a record $1.7 million compared with $1.2 million for the same period in 2018.
A record 197 MRI supported procedures were performed in the second quarter of 2019, up sequentially from 175 in the 2019 first quarter and up from 148 the prior year second quarter.
Biologics and drug delivery revenues, which includes sales of disposable products and services related to customer-sponsored clinical trials was $413,000 in the second quarter, an increase of 51% compared with $274,000 in the second quarter of 2018 and driven primarily by increased product sales of SmartFlow cannulas.
Capital equipment products sales and related service revenue increased 128% to $485,000 for the second quarter due primarily to an increase in sales of ClearPoint systems and equipment service contracts in connection with our rollout of the ClearPoint 2.0 software.
We now have 65 ClearPoint systems in circulation, of which 55 are in what we would describe as active clinical sites. In the second quarter, we recognized our very first therapy revenue in the amount of $17,000, which was sold under our U.S. distribution agreement for laser applicators with CLS.
In the future, other therapy products, including neuro lasers and our PURSUIT neuro aspiration devices will be placed into this therapy bucket. Gross margin for the 2019 second quarter was 60% compared to gross margin of 63% for the same period in 2018.
Gross margin vary slightly from quarter-to-quarter based upon our revenue mix between capital equipment, services and disposables. Over the past several quarters, gross margin has included a favorable mix of products sold and greater contribution from disposables that carry a relatively higher gross margin, a trend we expect to continue.
That said sales of capital equipment, while carrying a lower gross margin relative to disposables is the initial building block in expanding our installed base and enabling our razorblade model.
Turning to operating costs, research and development expenses were $698,000 for the 3 months ended June 30, 2019 compared to $665,000 for the same period in 2018, an increase of 5%. Sales and marketing expenses were $1.1 million for the three months ended June 30, 2019 compared to $926,000 for the first quarter of 2018, an increase of 23%.
General and administrative expenses were $1 million for the three months ended June 30, 2019 compared to $1.1 million for the same period in 2018, a decrease of 6%. Taking those expenses together, we experienced an increase in operating expenses of 7%, while driving a 58% increase in second quarter revenue on a year-over-year basis.
Our loss from operations for the 2019 second quarter was $1.3 million, down from $1.6 million in the prior year second quarter, an improvement of 21% year-over-year. Turning to the balance sheet and cash flows, during the 2019 second quarter, cash used in operating activities was $810,000.
To put this into perspective, cash used in operations for the first six months of 2019 was $1.4 million compared with $3.1 million during the same period in 2018, a reduction of 54%. Cash at June 30, 2019 was $7.5 million compared to $2.5 million at March 31.
Cash includes gross proceeds of $7.5 million raised during the 2019 second quarter from existing investors and a lead strategic investment by PTC Therapeutics.
We used a portion of these proceeds to repay approximately $2 million of debt, carrying a 12% interest rate that otherwise would have been due in September of next year and resulting primarily from the equity investments during the 2019 second quarter, approximately 13.7 million shares were outstanding at June 30, 2019.
With that, I will now turn the call back to Joe..
Thank you, Hal. As we mentioned on the last call, 2019 is about execution and it is great to start the year off with a strong first half. This is especially true of the multiple records on key financial and performance metrics as Hal has indicated.
As with last quarter, let me cover a few highlights within our four growth pillars to bring you up to date on our efforts. In pillar number one, continued growth in functional neurosurgery navigation, demand for our products remains strong and continues to accelerate.
We completed a record 197 cases in the quarter across our portfolio and expect the continued ramping of ClearPoint utilization and new site installations to drive the number of cases to between 800 and 850 cases for the full year of 2019.
In the quarter, we installed ClearPoint at two additional sites bringing our total number of systems in circulation to 65. We also completed a more global assessment of installed systems to better communicate and classify our installed base.
At the end of the quarter, of those 65 systems in circulation, we classified 55 of them as being at active clinical sites plus 10 systems which are either at preclinical research laboratories like the NIH or at what we describe as dormant accounts.
We believe the 55 clinical sites number is a good representation of our active installed base and better reflects penetration of hospitals and utilization when calculating various performance metrics.
As we mentioned, a key initiative over the past few quarters has been to educate and optimize workflows at our accounts so that more of our hospital partners are capable of completing two procedures per day in the same MRI magnet.
We did add one additional hospital to the quarter who is scheduling two a day-procedures, bringing our total count up to nine sites that have successfully met this goal. Additionally, our ClearPoint 2.0 platform is now fully commercialized in what we describe as a full market release.
This means that our sales and clinical team may offer the upgrade to any existing US customer and any new ClearPoint installation comes with 2.0 as the standard. Of our 55 clinical sites today, ClearPoint 2.0 is now installed at 22 of those clinical centers.
For pillar number two, growth in our biologics and drug delivery business, we saw continued sales in products and services to our partners in this space.
In the first half of 2019 alone, we have seen shipment of products to 10 unique customers, including our first shipment of SmartFlow cannulas to PTC Therapeutics in support of future use in the AADC program.
We are actively looking to replicate similar clinical trial agreements across our entire portfolio of partners in the drugs and gene therapy space, as reflected by our growing portfolio of biologics customers and the strategic investment and subsequent product orders from PTC Therapeutics.
We’re very excited about this partnership as it not only brings another world class development organization to our roster, but also creates the opportunity to further demonstrate the unique and important benefits of precise navigation and real time monitoring for these critical clinical programs.
Introducing just one additional full-service clinical partnership each year would be meaningful for our Company. And with more than 20 active partners in place and a broader reach that now extends into Europe, we believe it is just a matter of time.
Moving to pillar number three, which represents the launch of our own therapy products, we saw the recognition and shipment of our very first therapy product order in Q2, driven by our distribution partnership for non-neuro applications for laser ablation with CLS.
While the number is small in value, it’s an important first step in operationalizing all of the documentation and processes to act as a proper distributor for this product. We are very pleased with the team’s performance to make this happen one quarter or earlier than expected.
Our internal development efforts continue to be on track for our narrow application of laser ablation and still expect to perform our first human cases sometime in the second half of 2020.
With respect to our PURSUIT narrow aspiration system, our development partner the Mayo Clinic, completed installation of their new MRI magnet at their pivotal Phoenix location in the second quarter, which we expect to be the site of our first in human case.
While we have not performed our first human case at this site, we have successfully performed our first two ClearPoint cases at Mayo, which is an essential part of the navigation training process in preparation for our first therapeutic case.
We have also completed an eight-case simulated workflow study which we plan on submitting for publication in support of the initial site training. Turning to pillar number four which is to achieve global scale through expansion outside the U.S. and operational efficiency in the second quarter showed continued progress.
Most notably, as Hal reported, we achieved a 58% growth in revenue on just a 7% increase in OpEx. This was actually the second quarter in a row to achieve greater than 50% top line growth on just single digit percentage in increased costs.
Finally, I want to mention the strategic financial milestone of uplifting to the NYSE American Stock Exchange, which took effect just after the quarter closed. This event is an important next step to provide greater liquidity for stockholders and access to our stock for a broader range of prospective investors.
Preceding the uplift, we completed a private placement of our stock, raising gross proceeds of $7.5 million. The private placement was led by PTC Therapeutics and included a number of our existing investors.
I want to thank those investors and partners for their support and confidence in our strategic vision and we look forward to continuing the execution that is expected of us.
Regarding the rest of 2019, based on our strong Q1, continued strong Q2 and our pipeline of potential biologics and drug delivery programs, we are reaffirming our forecasted range of revenue between $10 million and $11 million in sales, which would represent a growth rate between 35% and 50% year-over-year.
We also expect the case volume across our portfolio to fall within our prior estimates of 800 to 850 cases. And last but not least, we are pleased to announce some additions to our Board of Directors.
As previously announced, Marcio Souza, the Acting COO of PTC Therapeutics has officially joined our Board and we welcome his experience and operations in biologics and gene therapy and in global distribution and outreach into the fabric of our board.
In addition, we just today announced that Kris Johnson will also be joining our Board of Directors on September 1. We are thrilled to welcome Kris’ diverse background in the medical device space as well as her experience in the investment community as we look to build the next great public neuro company.
With that, I will turn the call over to the operator for our question-and-answer session..
Operator:.
Once again, thank you everyone for joining us today. As you can see, we remain excited about the path forward. We see growth ahead in our core neurosurgical cases, our biologics partnerships and developing our own therapeutic tools.
We are very excited for continued success in the second half of 2019 as we continue our journey to becoming a premier platform neurosurgery company.
In addition to continuing to report our progress in key milestones, we will also be doing outreach through select conferences and road show opportunities, including the upcoming Sidoti Conference in New York City on September 25.
If you have any interest in meeting in person, please contact Matt Kreps at Darrow Associates, our investor relations firm using the contact information on our press release. They will work to ensure you are added to our meeting rosters at these or other upcoming events.
On behalf of our entire team, we thank you for your continued support of our efforts to take on these debilitating neurological disorders and we look forward to continued progress ahead. Thank you very much..
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation..