Earnings Call Transcript - RBOT Q1 2022

Operator, Moderator

Good afternoon, and welcome to Vicarious Surgical's First Quarter 2022 Earnings Conference Call. My name is Amber, and I will be your moderator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to Marissa Bych with Gilmartin Group for a few introductory remarks.

Marissa Bych, Presenter

Thank you all for participating in today's call. Earlier today, Vicarious Surgical released preliminary unaudited financial results for the 3 months ended March 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, expense management, market opportunity and commercialization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our quarterly report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9, 2022. Vicarious Surgical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I will turn the call over to Adam Sacks, Chief Executive Officer.

Adam Sacks, CEO

Thank you, Marissa. Good afternoon, and thank you all for joining our first quarter 2022 earnings call. I'm excited about the progress and achievements we have made early in the year, which I will review shortly before discussing our operational results. Joining me is Bill Kelly, Vicarious Surgical's Chief Financial Officer. I'd like to start by reminding you of our mission and vision. At Vicarious Surgical, we are committed to leveraging next-generation robotics technology to improve the standard of care for patients across a variety of surgical procedures while minimizing associated costs to the healthcare system. Despite advancements to minimally invasive surgery over the last 40 years, it is estimated that more than 50% of the 39 million annual procedures addressable by surgical robots are currently performed using open surgical techniques. Trauma from large incisions associated with these techniques results in long hospitalization and recovery times, high long-term costs of care and significant burdens on the healthcare system. While current minimally invasive techniques seek to address the substantial unmet need, these techniques fall short. Laparoscopic instruments are difficult to manipulate, have limited degrees of freedom, limited reach, and reduced depth perception and visibility, requiring significant coordination among the surgical team to perform the procedure. Currently marketed robotic systems offer some advantages compared to laparoscopic surgery, but require extensive training, have high associated costs and limited adoption. At Vicarious Surgical, we intend to deliver the next generation of robotic-assisted surgery to solve the shortcomings of open surgery and current laparoscopic and robotically assisted minimally invasive surgery. The Vicarious System combines advanced miniaturized robotics and software to build an intelligent single-incision surgical robot that virtually transports surgeons inside the patient to perform minimally invasive surgical procedures. Our proprietary decoupled actuators enable human-equivalent motion with a full 9 degrees of freedom per robotic arm, providing an experience that is more natural and more akin to the surgeon's own upper body movements. In surgical procedures conducted on cadavers, the system allows surgeons to enter the abdomen from nearly any angle and work in nearly any direction without the need to manually reposition the system. A stereoscopic camera that rotates in 3 degrees of freedom provides the surgeon with imaging of nearly every surface in the abdomen. The Vicarious System contains 28 sensors per instrument arm designed to enable real-time feedback to the surgeon regarding force, motion, and other key data intended to enhance the surgical procedures and patient outcomes. With its significant technical advantages, our system's value proposition to hospitals and ambulatory surgical centers is clear. The Vicarious System is designed to provide excellent surgical dexterity with a flexible setup to enable indicated procedures to be performed faster and more effectively with less injury and risk to the patient while significantly reducing overall healthcare costs. Unlike legacy robotic systems, our system is also much smaller, allowing for easy movement to any operating room throughout a medical facility. Furthermore, we intend for our product to be much more efficient to learn, set up, and use during procedures—hospitals and ambulatory surgical centers will not be required to dedicate permanent space, which reduces expenses related to operating room turnover. Finally, our system's efficient size and design will allow for a cost-effective price point. Considering these advantages, we remain incredibly excited about the unique opportunity for our system to benefit patients, surgeons, hospitals, and payers. Shifting to our recent progress. First, we are pleased to have completed the qualification of our clean room for the manufacturing of the Vicarious System. The clean room substantially augments our existing capabilities by providing an environmentally controlled and easily expandable space for precision assembly. Through rigorous testing, the qualification process ensures that our space meets stringent efficiency and quality criteria—an essential step as we prepare for the manufacturing of our system. Secondly, we are excited to share that we have concluded cadaveric testing of our beta 1 unit and have begun testing some features of our beta system with surgeons. We have partnered closely with a select group of well-respected surgeons to gather their thoughts and feedback as we refine the nuances of our technology, and we have high expectations for our final product. By engaging thought leaders core to the trajectory of surgical robotics, we know we will deliver a more thoughtful and comprehensive product prepared for efficient surgeon adoption. Over the past month, we have rigorously tested the first iteration of our beta 2 surgeon console in order to help answer questions about the final data to which we intend to lock for production shortly. Feedback on ergonomic changes introduced between beta 1 and beta 2 has been well received, with surgeons also excited for the improved visualization beta 2 provides, as well as the enhanced sensing and motion capabilities, which enable the surgeon to move freely within the abdominal cavity, further expanding their access and ability to operate. On the note of surgeon partnerships, we are pleased to announce we have recently formed a surgeon luminary group. This is a group of 20 of the most talented, experienced, and innovative surgeons, providing critical expertise and thought leadership to guide all clinical aspects of our technology. These surgeons include Dr. Igor Bellinski, who is credited with being the first to describe the robotic transabdominal access technique for repairing ventral hernias and who is globally recognized as an expert in robotic abdominal wall reconstruction. Dr. Bellinski is excited to work with our company because of our technology's potential to change the paradigm across surgery, as well as the ability of our company to rapidly iterate and incorporate surgeon feedback into our product offering. It is truly an honor to have this incredible group of surgeons working alongside us to create the future of surgery. Leveraging the experience from beta 1 and our many hospital and surgeon partnerships, as well as the expertise of our newly formed surgeon luminary group, we are now exploring opportunities for beta 2 cadaveric testing in a hospital setting as we finalize our product design. We look forward to continuing to update you on this progress in the coming months. Shifting to our early awareness and training efforts, we strongly believe that simulation outside of the operating room will play an increasing role in surgeon training for surgical robotics. We have a talented team of software engineers who have developed a simulation platform, and we are pleased to announce that we have begun allowing surgeons to use our robotic simulator for clinical and technical testing. Our simulator allows surgeons to virtually test beta 2 features in realistic scenarios, even from remote locations and without physical access to our system. This simulation program allows us to get surgeon feedback more quickly from more surgeons and with broader reach, ultimately ensuring that our launch meets the needs of surgeons and hospitals. We look forward to making our simulation for robotic hernia repair and additional use cases available to more surgeons across a broader set of hospitals later this year. We continue to identify and engage with major hospitals for product feedback as we finalize our system. To date, hospital engagement has reflected strong enthusiasm for our system. We are optimistic that our high engagement strategy will set the stage for broader reach as we plan our initial launch, ensuring that we build exactly what surgeons and hospitals need. As part of our partnership efforts, we are working toward executing a center of excellence agreement with the goal of generating valuable insights on the development, integration, and finalization of the Vicarious System. We are also confident that the center will help surgeons better understand and experience our system. We remain focused on leveraging our differentiated technologies and enhanced sensing to build out significant data and artificial intelligence capabilities. We see a unique opportunity for Vicarious Surgical to employ data and AI to assist in all aspects of the procedure from preoperative planning through postoperative care. Our unique HAMR technology not only provides for additional physical states for multispectral light sources and filters, but also provides the platform for 3D mapping, enabling advanced intelligence to support the surgeon's decisions during the procedure and postoperatively. Before I turn the call over to Bill to review our first-quarter financials, let me touch on our broader clinical and regulatory strategy. As a reminder, we are targeting the ventral hernia indication for our first clinical application with the intent to file a de novo classification request by late 2024, following which we intend to file for 3 additional indications: inguinal hernia, cholecystectomy, and hysterectomy. With that, we hope that by maintaining a close cadence of submissions, we will be able to offer customers a broad set of use cases relatively early in our commercial launch. In summary, we are making important steps toward realizing the full potential of minimally invasive robotic surgery. Our team is thoughtful and uncompromising in our approach towards development, with an emphasis on ergonomic appeal and technological excellence. We are actively building meaningful hospital and surgeon relationships to capitalize on this unique opportunity, and we are as confident as ever in the road ahead. Thank you, and I will now turn the call over to Bill Kelly, our Chief Financial Officer, for a discussion of our first-quarter financial results.

Bill Kelly, CFO

Thank you, Adam, and thank you all for joining us today. Total operating expenses for the first quarter of 2022 were $18.2 million, a 248% increase from $5.2 million in the first quarter of 2021. R&D expenses for the first quarter of 2022 were $9.8 million compared to $3.6 million in the first quarter of 2021. The increase was primarily driven by a $3.6 million increase in personnel costs as R&D headcount increased nearly 100% compared to the prior year, as well as increased professional fees, facility, and material costs as we continue beta testing and development of the Vicarious System. General and administrative expenses for the first quarter of 2022 were $6.9 million compared to $1.4 million in the first quarter of 2021. The increase in G&A expenses could primarily be attributed to $3.1 million in increased personnel costs, as well as $2 million in insurance, professional fees, and other costs associated with being a public company. Sales and marketing expenses for the first quarter of 2022 were $1.4 million compared to $0.2 million for the first quarter of 2021. The increase in sales and marketing expenses can primarily be attributed to increased headcount and related costs. Adjusted net loss, which represents GAAP net income or loss adjusted for the changes in the fair value of our warrant liabilities, was $18.2 million for the first quarter, equating to an adjusted net loss of $0.15 per share, as compared to an adjusted net loss of $5.2 million, or an adjusted loss of $0.06 per share for the same period of the prior year. GAAP net income for the first quarter was $42.5 million due to a $6.7 million reduction in the fair value of our warrant liability for the period, equating to basic and diluted net income of $0.35 and $0.33 per share, respectively, as compared to a net loss of $5.2 million, or a basic and diluted net loss of $0.06 per share for the same period of the prior year. For a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release. Our cash burn rate for the first quarter of 2022 was $16.5 million, and we ended the quarter with $157 million of cash and cash equivalents. As we advance our development, clinical and regulatory processes, we continue to expect a 2022 cash burn of approximately $65 million to $75 million. We also continue to anticipate ending the year with approximately $100 million in cash and cash equivalents on our balance sheet. We look forward to updating you on our continued development as we march towards bringing the Vicarious System to market. We are uplifted by our progress to date and excited by the opportunity ahead. And with that, I’ll turn the call back to Adam. Adam?

Adam Sacks, CEO

Thanks, Bill. I'd like to close by reiterating our appreciation for our team here at Vicarious Surgical, along with our investors, advisers, and partners for contributing to our company's achievements thus far. We have an exciting journey ahead, and we are making measurable progress in support of our goal to revolutionize minimally invasive surgery. Thank you again for joining today's call. Operator, would you please open the line for questions?

Operator, Moderator

[Operator Instructions] Our first question comes from Ryan Zimmerman with BTIG. Ryan, your line is now open.

Ryan Zimmerman, Analyst

All right. Adam and Bill, appreciate it. Good to hear the progress. Adam, last call, we left with the update that you needed a trial; the FDA was requiring a trial for progress for de novo approval. Can you provide any update or feedback since that time regarding the progress that you guys have made? Any discussions with the FDA? Anything you can share with us regarding that topic I think would be appreciated for investors.

Adam Sacks, CEO

So thanks, Ryan. There has been a ton of progress across a few different areas with regard to the FDA, clinical trials, and indication sequencing. From the FDA conversations, we've had discussions since then with the FDA, but have no formal or material updates to share on this call at the time. It's been incredibly positive open communication with the agency. We are actively planning and revising any clinical trial plans. Everything is still, as we shared, likely a relatively small number of patients and likely a single-arm study without statistical significance. Lastly, we've dug in, in-depth and we'll be able to have some significant parallel effort in order to achieve those four indications within roughly a year or so of launch, but have more details on that to come in the following quarters.

Ryan Zimmerman, Analyst

Okay. Good to know, yes, we'll certainly be looking forward to hearing about that. And then in terms of -- you're now moving into beta 2, you were in beta 1, you have the surgeon panel kind of up and running. And you talked a little bit about some of the changes, I think ergonomic visualization. Can you just talk a little more about that, Adam, what specifically did you learn from beta 1 to beta 2 that you enhanced? And if you carry that forward, what can people expect on the newer system?

Adam Sacks, CEO

So the biggest learnings from beta 1 have really been about the robot itself and the value of the patient-side cart and the robotic technology that we've created. Beta 1 was able to provide surgeons with incredible ability to perform operations and cadaver testing across a variety of different procedures with a number of different surgeons. That being said, there is significant room for improvement in a few different areas. Specifically, we are focusing on improvement regarding ergonomics—how the surgeon interacts with the device rather than how the device interacts with the patient. We have seen significant progress in our formative testing of the initial beta 2 workstation. This includes revisiting how the hand controllers work, the ergonomics behind the hand controllers, and a few other aspects of surgeon interaction with the device. We’ll be really excited to demonstrate this in a hospital setting and show this to analysts and investors at a later point.

Ryan Zimmerman, Analyst

Awesome. Thanks for taking the questions.

Operator, Moderator

Thank you, Ryan. Our next question comes from Josh Jennings with Cowen. Josh, your line is now open.