Stereotaxis, Inc. Q3 FY2022 Earnings Call

Good morning. Thank you for joining us for Stereotaxis' Third Quarter 2022 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, Chairman and CEO of Stereotaxis.

Thank you, operator, and good morning, everyone. I'm joined today by Kim Peery, our Chief Financial Officer. Against the backdrop of a challenging macro environment, I'm pleased with the commercial and technological progress we've made since our last call. From a commercial perspective, the overall dynamic remains similar to what we've described in the past: Continued and more consistent order activity, hospital construction delays and positive engagement with customers. We received two system orders during the third quarter, and have had a strong start to the fourth quarter with two signed purchase contracts already received, reflecting the continued global interest and demand for our robotic technology. The third quarter orders included a Genesis system in the United States and the Niobe system in China. The recent signed purchase orders are for replacement Genesis systems in Europe and the U.S. Over the course of this year, we have seen more consistent and more reliability in the pace of orders, which I believe demonstrates greater maturity in our capital sales pipeline and processes. We've now seen several quarters in a row with multiple system orders and have a healthy pipeline of greenfield and replacement cycle prospects across each of our three focused geographies. The recent improvements in our commercial leadership and capital sales infrastructure are expected to further improve our execution and growth. This order activity is encouraging. It has expanded our capital backlog to over $13 million or over $16 million if we include the two signed purchase contracts of robotic systems that have been ordered but not yet recognized as revenue, pending shipment and installation. Hospital construction timelines continue to be slow, with hospital customers consistently struggling to meet their internal expectations. While this is outside our control and impacts revenue recognition, orders in our backlog are essentially guaranteed with significant nonrefundable down payments, providing confidence in realization. On the commercial front, we will continue to focus on what we can control, generating growth in orders and ensuring that existing robotic practices have successful experiences with our technology. That fundamental progress will ultimately carry through and positively manifest in the optics of our financial statements. Last month, I had the opportunity to join many of the most prominent users of our technology at the Society for Cardiac Robotic Navigation Annual Conference in Budapest. The conference was well attended, with over 100 participants. Several presentations highlighted our clinical value across a broad range of arrhythmias, including more recent data showing superior safety and efficacy for pediatric patients. Other presentations demonstrated our ability to be used alongside a spectrum of mapping and imaging technologies, showcased our innovation pipeline and detailed how robotics can enable ablation procedures to be performed through arm access rather than the groin. Qualitatively, it was a very positive meeting. There is an increasingly positive vibe on the trajectory of robotics in the field, and we are fortunate to benefit from a strong vocal community of physicians that are passionate about advancing robotics. Following the SCRN conference, I had the opportunity to visit the National Institute of Cardiology in Warsaw to celebrate the recent launch of Genesis in Poland. The physicians at the institute are among the newest additions to this community of vocal advocates. It was encouraging to hear how pleased they have been with the clinical and commercial value of establishing a robotic electrophysiology program. During my visit, I had the opportunity to watch them successfully treat a young woman with complex congenital heart disease, which reinforced the positive impact our robotic technology has on patients that otherwise would have no good alternative treatment options. Shifting now to the progress made on our strategic innovation plan. As a reminder, Stereotaxis' innovation strategy includes multiple key efforts that individually serve as substantial growth drivers and collectively serve as a foundational product ecosystem for our mission to transform endovascular surgery with robotics. There's truly a broad range of progress happening here in parallel, and things are generally advancing in line with the previously shared timelines. I'll share some additional details on the MAGiC catheter, the mobile robot, our collaboration with MicroPort and recent testing of our guidewires and guide catheters with several neurosurgeons. As announced last quarter, the MAGiC Ablation catheter's CE Mark submission was made in July under the new more stringent MDR regulations. Last month, the EU notified body performed its completeness check of the submission. The completeness check concluded successfully, and subsequent to that, they began their technical review of all the data. MDR has created a significant backlog of work with the EU notified bodies, so it remains difficult to estimate how quickly they will conduct their technical review. But we were overall pleased with the thoroughness and engagement they provided during the completeness check. In the U.S., our IDE submission remains dependent on successfully completing a few preclinical survival studies. Establishing an official institutional animal care and use program that is GLP-level quality was a major undertaking and necessary milestone to start those studies. I'm pleased that the IACUC Committee formally launched our program recently, enabling us to start preclinical studies shortly. We continue to see U.S. FDA approval of the MAGiC catheter approximately two years after as a reasonable timeline. The excitement with which physicians at the SCRN conference view the MAGiC catheter reinforces our own excitement for the clinical, commercial, and strategic benefits MAGiC will provide. Development of the next-generation mobile robot has advanced well, with the hardware, electronics and software aspects of the system coming together nicely. Supply chain challenges, which had previously held up progress, seem behind us and should no longer pose a risk to our timeline. We continue to envision an initial launch of the system next summer. The transition of our technology from a construction project to broadly deployable technology is transformational for our opportunity and for the accessibility of robotics in the field. Our collaboration with MicroPort in China has seen progress on the Genesis regulatory submission, mapping integration, catheter development and commercial preparation, all happening in tandem. During the third quarter, Genesis was installed at MicroPort's showroom in Shanghai, and all required local regulatory testing was completed successfully. We expect the Genesis regulatory submission to China and China's NMPA before the end of this year. Mapping integration with MicroPort's Columbus mapping system has also been largely completed. Development of a MicroPort ablation catheter has advanced well, as has progress in filing for the MAGiC catheter in China, which is expected to take place soon after the MAGiC's receipt of CE Mark. All this sets us up nicely for having a complete, up-to-date and integrated product ecosystem ready for commercialization in China by the latter part of next year. In preparation for this launch, MicroPort has already started to invest in preparatory commercial activities. They recently hired six individuals as part of a dedicated robotic capital sales team. That team will work alongside the over 100 members of the core electrophysiology clinical sales team to drive adoption of robotics in Chinese EP markets. MicroPort's EP division is poised to play a very significant role in the Chinese EP market, having just completed its own IPO on the Shanghai Stock Exchange, raising $170 million and now valued at over USD 1.5 billion. We are pleased to be partnered with them and believe their strength and strategic alignment around robotics shines light on the commercial opportunity ahead of us as the product ecosystem becomes available. Lastly, on the innovation side, I wanted to provide a little color on our efforts to expand the benefits of robotic magnetic navigation beyond electrophysiology into multiple new clinical indications. Foremost on our mind is neuro intervention. As previously shared, we have been working to develop the software user interface and interventional tools that could be valuable for neurosurgeons performing complex endovascular therapy for stroke. Three weeks ago, we hosted three neurosurgeons from three prestigious hospitals in the United States to evaluate our devices in neurovascular phantoms. They tested our magnetic guide catheters to overcome proximal challenges in gaining and establishing access to the brain, and then our magnetic guidewires to navigate smaller, tortuous vessels deeper in the brain to deliver coils and reach clots. They tried the same activity with standard manual devices they've used in daily practice for many years. Let me share a few quotes they made while using our technology: 'I've done thousands of similar procedures and what we were just able to do with your robot is unbelievable. This provided an unprecedented ability to rapidly reach areas that are otherwise impossible to get to. This would have real value right now in my daily practice. In some of these procedures, I have been forced to spend an hour exchanging handfuls of devices to finally reach the target. And with this catheter, it was effortless. The clinical and financial benefits are huge.' Experiences like this give us confidence that we are on the right path and that the work we are doing will play an important role in the improvement of medicine. We are still working to establish consistent scalable manufacturing of the guidewires and guide catheters. As that is accomplished and we make regulatory submissions, and approach commercial launch, we will arrange an Innovation Day where those physicians and other neurosurgeons can share their experience with our technology and how they see it improving clinical outcomes, expanding access to patients, and reducing procedure time and cost. Kim will now provide some commentary on our financial results, and then I'll make a few financial comments as well before opening the call to Q&A.

Thank you, David, and good morning, everyone. Revenue for the third quarter of 2022 totaled $7.7 million. Recurring revenue for the quarter was $5.3 million, consistent with the $5.3 million reported in the prior year third quarter. System revenue for the quarter was $2.4 million, down from $3.5 million in the prior year third quarter due to hospital construction delays that continue to slow the conversion of our system backlog into revenue. Gross margin for the third quarter was 60% of revenue, with system gross margin of 16% and recurring revenue gross margin of 80%. System gross margin remains impacted by low production volume and the allocation of significant fixed overhead expense. Recurring gross margins were slightly impacted by a one-time write-off and the strength of the dollar. Operating expenses in the quarter of $9.6 million included $2.7 million in noncash stock compensation expense. Excluding stock compensation expense, adjusted operating expenses were $6.9 million, which is consistent with the $6.8 million in the prior year third quarter and $7.2 million in the second quarter of this year. Operating loss and net loss for the third quarter of 2022 were $5.1 million and $4.9 million compared to $4.6 million for both in the previous year. Adjusted operating loss and adjusted net loss, excluding noncash stock compensation expense, were $2.4 million and $2.2 million in the current year quarter compared to $2 million for both in the prior year quarter. Negative free cash flow for the third quarter was $2.7 million compared to $1.5 million in the prior year third quarter. Negative cash flow this year has been significantly impacted by over $2 million in one-time expenses for our new headquarters and manufacturing facility, as well as an over $3 million investment in inventory. At September 30, we had cash and cash equivalents of $32.4 million and no debt. I will now hand the call back to David.

Thank you, Kim. We recognize that system revenue in any given quarter has been difficult to predict and that we have not done a good job in guiding the financial community over the last several quarters. Given that experience, we've determined that it's more prudent to avoid providing specific revenue guidance until we have more confidence in our forecasting ability. Fundamentally, we are pleased with the order activity we've seen and opportunities to grow that activity going forward. We believe that our existing system backlog of over $13 million, along with our capital pipeline, supports year-over-year revenue growth over the coming quarters. New technology launches and an enhanced commercial organization will support more substantial revenue growth over the coming years. As Kim mentioned, our cash use this year has been significantly impacted by our investment in our new facility and robot inventory. Those are both conscious and, we believe, prudent investments, the former to support many years of growth and the latter given the challenging supply chain environment. Our core operating burn rate, excluding those items and smoothing for quarterly variability remains approximately $1 million a quarter. We are cognizant of the macro environment and the importance of being financially prudent and disciplined. We remain confident in our ability to advance our strategy, drive organic growth, and reach profitability with our current financial resources. We look forward to now taking your questions. Operator, can you please open the line to Q&A?

Our first question will come from Adam Maeder with Piper Sandler.

Congrats on the progress. Maybe to start with David, I wanted to start on just the backlog, which is starting to build here. I'm just trying to think about our models and how to kind of ascribe revenue. So any color around the drawdown of the backlog, revenue recognition over the next couple of quarters, and just how do you think about kind of visibility there. And then I have a follow-up or two.

Sure. So as I described in the call, we have a backlog of over $13 million. If you include the two recent purchase contracts that were signed, it's over $16 million. And we have obviously done a poor job in guiding you and the rest of the financial community in really knowing how those orders that were received end up turning into revenue. However, overall, I think that while we have case examples where orders are received and shipped very quickly and we recognize revenue very quickly, we have some that have taken over a year before a hospital is ready. I think the general thought that backlog should turn into revenue within a year's time makes sense in the vast majority of cases. There might be a few examples where that doesn't take place and it takes a little bit over a year, but there will also definitely be examples where things are received and convert much more quickly, even within the same quarter. And so I think that's kind of our general statement on how to think about order backlog and its conversion into revenue. Obviously, in any given quarter, a shipment of one system or installation of one system being in that quarter or not can make the difference between almost $2 million, and so there's a lot of volatility there. But that's, I think, a general statement that we'll work through.

Okay. That's perfect. Really, really helpful color. And then for the next question, I wanted to ask about the MAGiC RF catheter and just the level of visibility into CE Mark approval. Certainly recognize the MDR process has been challenging for all medtech participants, but it seems like things are going well for you guys. Just wanted to see if there's any additional color you can share at this time in terms of those discussions or timelines.

Yes. So obviously, when you put in a regulatory submission, a lot of it is outside of your control, you're kind of in the dark until you get asked questions. And so you really don't get great color into how things are going. What was nice was that last month when they did their completeness check, it was a very thorough completeness check. So based on some of the smaller observations they made and some of the questions they asked, it was clear that they did a very detailed review. Overall, we were able to answer all the questions and to make certain small adjustments to the submission based on their observations very rapidly, and we were able to finalize the completeness check. They then moved on to the technical review. So overall, we were pleased with that engagement, both in terms of the effort that they made and the ability for our application to live up to kind of the rigorous standards. I think that we also had some experience with MDR submissions just prior to the MAGiC submission, so we benefited from that experience. So overall, I feel good about things. But obviously, it's in the hands of a notified body, and we are primed to respond if we get any questions. And otherwise, we are crossing our fingers for approval as soon as possible.

Okay. Perfect. And I'm going to sneak in one more, if that's okay. Just a quick clarification question. The mobile robotics system it sounds like things are tracking more or less to kind of the summertime frame for approval and launch. Hopefully, I heard that correctly. Have you made those submissions to FDA or the European notified body? Just wanted to clarify that.

Sure. Thanks, Adam. So we... yes, that is tracking well. We still feel confident in an initial launch next summer. We have not made any submissions to date. We don't expect to make any submissions for at least another few months, but we have fairly good clarity given our engagement with both the regulatory bodies in Europe and the U.S. We have a fairly clear view of what our regulatory strategy would be and feel very confident on that given also our recent experience with Genesis. So we're good where we stand. We feel very good about that.

Next question will come from the line of Neil Chatterji with B. Riley.

Could you provide an update on how the sales funnel is progressing? I remember you mentioned having a couple of dozen previously, so I’m curious if there have been any changes since then.

Yes. So we kind of... sure, Neil, let me try to give a little bit of color there. So we described, I think it was probably in the springtime that we were starting to work on a more organized and disciplined way to track the sales funnel, and really, this is kind of less for reporting out purposes, more for making sure that we, as a team, are advancing the pipeline and are responsive to any potential risks, red flags or opportunities in the pipeline as quickly and as good as possible. That kind of process has been a nice process in that it does create a lot of visibility on the pipeline and helps us better understand it. Now there are certain types of insights on that pipeline that will really only come over the period of time because what we're trying to do is track these projects in an organized way. Over time, you start to be able to do statistical analyses. I hope that at some point in the future, I can give guidance on orders that we expect. Currently, I would say that when you look at the more realistic nearer-term opportunity, or things that we have higher confidence in understanding those projects, understanding their potential to move forward, I'd say we still remain in kind of over a dozen each in the U.S. and Europe, and a little bit less than that, but a nice growing amount also in China as it starts to build its commercial capability. That's how I'd describe things right now. I hope in the future to provide a quantitative measurement of what's early versus mid versus late and how we think about the probability and time lines of conversion into orders.

Got it. Got it. And then maybe just kind of relating to that, you had a nice order for a second system in Overland with HCA. So I was just curious to hear any color around your further progress kind of around the health system or IDN strategy?

Sure. Dr. Lakkireddy is a prominent physician in the field and he's been a great proponent of robotics for many years now. He was actually the primary author on the publication a few years ago, which demonstrated a statistically significant improvement in efficacy, safety and efficiency for robotics versus manual catheters in VT. He has both experienced the benefits of robotics at Overland Park and prior to that, at Kansas University. We have several other hospitals at HCA that use our robot and some of them do very well. We continue to think that over time, it is reasonable that a broader IDN type strategy can evolve, either with that IDN or with a couple of other larger IDNs we have multiple installations with. We have oftentimes nice engagement with individuals higher up in the system. As there's increased clinical acceptance and use in the field, and as the product ecosystem becomes more attractive, we expect that can significantly drive initiatives from the top-down approach, while on the other hand, there are already some benefits being seen from the bottom-up, given the relationships we've built.

Our next question will come from the line of Frank Takkinen with Lake Street Capital Markets.

Maybe just to start with construction timeline variability. Can you call out what is happening with a little bit greater detail? Is it more of a staffing issue? Or is it that the hospital is reluctant to fork over the CapEx required for the construction project? Just maybe a little bit more clarity into what is occurring with the construction timeline variability.

Frank, sure. I think it's really more of staffing issues. And sometimes it isn't just staffing in the way that we normally talk about staffing, nurse staffing or tech staffing. Oftentimes, it's also engagement with external contractors and architects. The reason I don't think it's really the latter is that before they get internal approval and budget to pay for the down payment on our system and to order the system, they're usually concurrently getting approval for the entire budget also for construction. So this is usually not a budget approval question anymore. They gain budget approval, put in an order for our system, and pay the down payment which is a real cash outlay. You would expect that once a multi-hundred thousand dollar cash outlay is made, they are motivated to realize that investment. We have seen, in the most egregious cases, construction timelines take over a year longer than expected. There are some cases where we shipped and recognized partial revenue, but that was not installed almost two years after the initial order and payment. Some hospitals seem to really struggle in advancing construction projects, which seem to tie to turnover of their internal staff and/or issues dealing with architects and contractors.

Got it. That's helpful. And then maybe on the DSA side, I saw that number was down a little bit more than expected quarter-over-quarter. Anything specific to call out in that line item?

Sorry, can you repeat the question on the DSA side? On the...

The disposable services and accessories line.

Oh, disposables. Generally, procedures remain roughly in line. They dropped after COVID started about two years ago. We've had some volatility there but generally the state has remained kind of stable since then. We continue to have pressure on the service side as hospitals do replacement projects. In these situations, you usually lose your service revenue because that's waiting until the installation of the Genesis system, which then comes with a one-year warranty. That would be my general take. I don't see anything substantial taking place there. There’s also a little impact of FX. About a little more than half of our procedure volume, let's say, almost half of our business comes from Europe and Asia. With the strengthening of the U.S. dollar, we probably took about a 15% FX hit to that revenue year-over-year.

Okay, that's helpful. And maybe one quick last one to follow up on Adam's last question related to the submission of approval documentation or clearance documentation for the mobile robot. I think you said another few months until we submit. Do you think that could occur by year-end? Or is that more likely a Q1 '23 event when you submit for mobile clearances?

So we talked about an initial launch in the summer of next year. Based off of our strategy, that's something that would take place in the first half of next year a submission. This would allow us to have an initial launch in the third quarter. We feel good about our regulatory path, given our recent discussions. That sets us up nicely that even with a submission for the first half of next year, we'll have the ability for an initial launch in summer.

Your next question will come from the line of Alex Nowak with Craig-Hallum.

I was just hoping to discuss a little bit on the mobile robot system, just how you're preparing the commercial organization to sell that system once it's launched. I would imagine it's a little bit of a different sell than Genesis or Niobe. And then just anything that can be done from whether it be disposable financing agreements, fair value lease agreements, to help just make that purchase easier for some centers.

Sure. Thanks for the question there, Alex. You're right. I'll kind of talk on the second part first. There are a couple of big commercial benefits to that technology. One of them is obviously reducing the burden, the construction burden, everything associated with that site; and the other one is the ability to start to offer customers different financial options to access the technology. I would think that we will offer three ways to access the technology. To some extent, we will be agnostic to the choice that a customer chooses. We will obviously continue to offer them the ability to purchase a system, but we will also offer the ability to lease or rent a system, and the ability to place the system with substantial disposable purchase commitments. The way that we will structure those three is such that to some extent, Stereotaxis is agnostic financially to which one the customer chooses. At the end of the day, you can retain about $1.5 million in value of a robot, excluding an X-ray. You can retain that through different mechanisms of payment. Offering those options should help drive adoption and accelerate timelines for moving deals forward. So I think that by offering those three options, we give them the best way to move forward and let them choose, depending on their internal dynamics and bureaucracy.

That's great, and that's very helpful... Sorry, go ahead, David.

No, continue, Alex. Sorry.

No, I was just going to say maybe on the commercial organization, just around the sales structure there, if any changes need to be made?

Yes, exactly. So that was the first part of your question. On that side, I'd say the primary focus is on building a substantial and improved capital sales capability in Europe, where having the mobile robot available will obviously provide a lot of benefits and a lot of flexibility in how we approach customers. In the U.S., we also think about how it can drive vascular adoption in new clinical applications. We have had many discussions on how to build a robust capital sales capability, how to expand your team, and how the mobile robot impacts that process. We are overall in that kind of planning and learning stages. We have, over the years, accumulated a whole host of customers and physicians who have been interested in our technology but have not been able to move forward due to administrative construction challenges at their hospital. Thus, we have a list of many physicians who have a fundamental interest and desire in our technology whom we can approach first when it becomes available.

Very helpful. And I know we're talking about the orders and the pipeline, what it looks like there. But just maybe comment on the general CapEx environment out there in the hospitals. A lot of mixed signals this earnings season about what hospitals are seeing. Just curious what you're hearing. Are things getting better?

It's hard. We're a very small fish in a very big ocean, and it's very hard for me to give a great color on the overall macro environment when it comes to CapEx. Definitely, we still live in a world where there are headwinds. We see hospitals with financial pressures, staffing pressures, and it's not an easy environment. It’s not a tailwind type environment, where people are running to buy things and easily spend money due to overflowing budgets. However, I’ve heard the same reports and same kind of commentary that larger capital equipment players in the medical device space have made this quarter. There are differences of opinion on is it becoming slightly easier or worse. We are pleased with the order activity we've seen, both in the third quarter and at the start of the fourth quarter, as well as our pipeline. However, we're a small player in a larger market, so I'm not sure that our activity should represent the broader world.

Yes. Understood. That makes sense. And then maybe some goalposts to watch here for validation and then around the commercial launch eventually in the neuro intervention side.

We are a little early there. Obviously, as we are nearing regulatory approval for guidewires and guide catheters that would allow us to start to launch, we’ll want to do an Innovation Day where those physicians and other neurosurgeons can share their experience with our technology and how it improves clinical outcomes, expands access to patients and reduces procedure time and cost. Overall, we are in a situation of scaling manufacturing and building things in a consistent fashion. Thus, we know that we have devices that have been designed and developed that work very well and can provide clinical value. Our effort now is to ensure we can manufacture consistently and scalably prior to doing a regulatory submission. We hope to provide more meaningful updates in a couple of quarters so you'll have color on that launch.

Your next question will come from the line of Josh Jennings with Cowen.

I wanted to just ask about China. It's great to see another Niobe order come in. But I wanted to just help on how to think about the thrust into China in front of Genesis approval. Is MicroPort's capital team starting to market Niobe in front of the Genesis approval? Do you still have your own Stereotaxis team out in the field? Just wanted to better understand the next 12 months before we see the China approval for Genesis.

Sure. Josh, thanks for the question. It's been exciting working with the MicroPort team. If we talk about the Niobe orders that we've received over the last year and a half, they have primarily been driven by the Stereotaxis team based in China. Our three dedicated salespeople there are a great small team and have supported several customers using our robot for several years. Great work clinically and academically has led to a halo effect on our relationship. Thus, the Niobe orders are not part of a concentrated commercial effort but rather stem from word of mouth and activity from our Stereotaxis team. Some hospitals have a budget they must use or lose; thus, if they are interested, they move forward even with the Niobe system. Looking ahead, there are several things that have to come together for the complete ecosystem in China, including Genesis regulatory approval alongside the mobile system, mapping integration and the introduction of MAGiC catheter and MicroPort-specific catheter. Progress has been positive, despite lockdowns and challenges in China. MicroPort's team has started to plan for building dedicated robotic sales capability already, and their team has now started to make efforts to drive robotics sales although they haven't played a substantial role yet in building the robotic pipeline. I think there's a lot of aligned interest and strategy in advancing robotics in China and MicroPort is becoming a substantial player in the Chinese EP market.

That's great to hear. I just wanted to make sure I fully understood your comments just around the sales funnel in China. You talked about the U.S. about a dozen, Europe about a dozen, and then something lower than that in China. But that sales funnel has all been driven by your Stereotaxis team; MicroPort really hasn't contributed to that yet.

Yes. I'd say the MicroPort executives have been engaged over the last few months in building the capital pipeline and how to engage with physicians. However, when I refer to the orders that we are receiving, those are more driven by our Stereotaxis team. Their sales team hasn't played a role yet in building a robotic pipeline; the benefits from that team will become substantial as we approach full ecosystem in China.

Excellent. And I just wanted to ask about where you stand with the development of a PFA catheter. I think there’s been a debate on whether tissue contact is essential. And the second part is really just how RMN, or robotic magnetic navigation, could be an important tool for PFA procedures in the future?

Yes. So good question. There was a presentation on some of the animal work done with PFA and our catheter at the SCRN conference. The thesis there is that catheter stability and contact with tissue is particularly important in PFA, especially where you're having microsecond pulses of therapy delivery. If you do not have stability during that microsecond, you don't have effective therapy delivery. Many reasons support the view that Stereotaxis' core mechanism of action will have particular value in the PFA environment. We've been working, as described before, with at least two companies that have PFA generators to integrate that type of therapy from the generator with our catheters. We need to complete additional preclinical work before moving to human use, and having our IACUC set up at our new facility for animal trials was an important milestone for both the MAGiC IDE process and that effort. We hope to conduct that additional preclinical work and, assuming successful results, to move forward.

Great. And just one last one, just a follow-up on the neuro guidewire and guide catheter projects. I just want to confirm, those are 510(k) pathway submissions, and they're going to be compatible with both Genesis and the mobile system. Should we think about the penetration into the neuro indication and neuro opportunity primarily driven by the mobile system combined with these guidewires and guide catheter?

Yes. Thanks for the question, Josh. Yes, you're correct. The guidewires and guide catheters are designed to be interoperable with a broad range of therapeutic devices and will be backward compatible with Genesis and Niobe. I expect the mobile system to play a key role in entering new clinical fields, as physicians might not initially feel confident in the clinical value our technology provides. We want to give them a path to test and use our system, allowing them to commit to its value, then adopt it for long-term use based on the outcomes they generate. The mobile system will make that adoption easier in new clinical specialties.

Your next question will come from the line of Javier Fonseca with Spartan Capital.

It has been challenging with the system installments. However, I am more interested in discussing recurring revenue and how we expect that to evolve moving forward, particularly as we approach the end of the year and into Q1 2023. Can you provide an overview of the factors affecting recurring revenue as we move forward? Additionally, do you have better visibility on this compared to system installments? Also, regarding recurring revenue and procedure volume, how do you anticipate utilization levels will trend in 2023?

Sure. Generally, we've had relatively stable recurring revenue. Q3 is generally a somewhat weaker quarter due to summer vacations and procedure volumes outside the U.S. However, we are pleased with the stability overall. We expect this stability until we start launching the MAGiC catheter in Europe and start commercializing more robustly in China or launching new endovascular products outside electrophysiology. Additionally, new site installations, the impact on overall numbers remains relatively small given an installed base of around 100 active systems, with new greenfield launches around 1%. As hospitals execute replacement projects, we might encounter a down period for procedures that would yield no service revenue and follow with a one-year warranty. This leads to a relatively stable recurring revenue, with growth drivers including the MAGiC catheter, the MicroPort catheter in China, or new clinical indications.

Excellent. I have a quick question about China. On the last earnings call, you mentioned that procedures were down 70%. Do you have any updates on that number or any insights regarding China in Q3? I understand it's been a rather unpredictable year.

Yes. China was still down year-over-year in the third quarter but rebounded nicely versus the second quarter. I don't have the exact numbers in front of me, but we are still down double digits year-over-year. However, I hope the fourth quarter has been better. There are still lockdowns, and our sales team has encountered difficulty traveling to support cases in some of the cities. While it's better than Q2, we're not back to an open environment. I've heard some recent general news reports that things might open up fully, so we'll see how developments unfold in the next few months.

At this time, there are no further questions. I'll turn the conference back over for any closing remarks.

Okay. Thank you very much for all your good questions and for your continued support. We look forward to working hard on your behalf as we close out the year and speaking again in 2023. Thank you very much.

Ladies and gentlemen, that will conclude today's meeting. Thank you all for joining. You may now disconnect.