The following discussion of our financial condition and results of operations
should be read in conjunction with our condensed consolidated financial
statements and the related notes to our condensed consolidated financial
statements included in this report. The following discussion contains
forward-looking statements. See cautionary note regarding “Forward-Looking
Statements” at the beginning of this report.
Overview
between the surgeon and the patient to pioneer a new era of Performance-Guided
Surgery™ by unlocking clinical intelligence to enable consistently superior
outcomes and a new standard of surgery. This builds upon the foundation of
Digital Laparoscopy with the Senhance® Surgical System powered by the
Intelligent Surgical Unit™, or ISU™, to increase surgeon control and reduce
surgical variability. With the addition of machine vision, augmented
intelligence, and deep learning capabilities throughout the surgical experience,
we intend to holistically address the current clinical, cognitive and economic
shortcomings that drive surgical outcomes and value-based healthcare. The
Company is focused on the market development for and commercialization of the
Senhance Surgical System, which digitizes laparoscopic minimally invasive
surgery, or MIS. The Senhance System is the first and only digital, multi-port
laparoscopic platform designed to maintain laparoscopic MIS standards while
providing digital benefits such as haptic feedback, robotic precision,
comfortable ergonomics, advanced instrumentation including 3mm microlaparoscopic
instruments, 5mm articulating instruments, eye-sensing camera control and
fully-reusable standard instruments to help maintain per-procedure costs similar
to traditional laparoscopy.
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The Senhance System is available for sale in
• The Senhance System has a CE Mark inEurope for adult and pediatric laparoscopic abdominal and pelvic surgery, as well as limited thoracic surgeries excluding cardiac and vascular surgery. • Inthe United States , the Company has received 510(k) clearance from the FDA for use of the Senhance System in general laparoscopic surgical procedures and laparoscopic gynecologic surgery in a total of 31 indicated procedures, including benign and oncologic procedures, laparoscopic inguinal, hiatal and paraesophageal hernia, sleeve gastrectomy and laparoscopic cholecystectomy surgery. • InJapan , the Company has received regulatory approval and reimbursement for 126 laparoscopic procedures. • The Senhance System received its registration certificate by the Russian medical device regulatory agency, Roszdravnadzor, inDecember 2020 , allowing for its sale and utilization throughout theRussian Federation .
We also enter into lease arrangements with certain qualified customers. For some
lease arrangements, the customers are provided with the right to purchase the
leased Senhance System during or at the end of the lease term (“Lease Buyout”).
On
Surgical, Inc.
capabilities, along with our other augmented intelligence related offerings and
instrumentation to unlock clinical intelligence to enable consistently superior
outcomes and a new standard of surgery we are calling Performance-Guided
Surgery. We believe our product offerings, and our digitization of the interface
between the surgeon and the patient allows us to assist the surgeon in all
aspects of laparoscopic surgery including:
? Pre-operative - in what we call "intelligent preparation," our machine
learning models will take data from all the procedures done utilizing our
current Senhance System with the ISU, such as tracking surgical motion and
team interaction, to create a large and constantly improving database of
surgeries and their outcomes to enable surgeons to best inform their approach
and surgical setup.
? Intra-operative - we believe the Senhance System provides perceptive real-time
guidance for intra-operative tasks, allowing any surgeon performing a
procedure with the Senhance System to perform multiple tasks and benefit from
the collective knowledge and rules-based performance of thousands of other
successful Senhance-based procedures. Not only will this provide the surgeon
with a pathway to better outcomes, but we also believe it will ultimately help
reduce the cognitive load of the surgeons.
? Post-operative - by tapping into the vast amount of data captured during
procedures, surgeons and operating room staff will be able to get actionable
assessments of their performance giving them the information needed to improve
performance over time. We intend to establish a new standard of analytics to
improve not only the skills of all surgeons but move towards
best-practice-sharing that bridges the global surgeon community.
We received FDA clearance in
FDA cleared device for machine vision technology in abdominal robotic surgery.
On
completed using the ISU. In
In
instruments for pediatric use indications in CE Mark territories.
In 2020, we obtained regulatory clearance for the Senhance ultrasonic system in
both
and
include pediatric patients, allowing accessibility to more surgeons and
patients, as well as expanding our potential market to include pediatric
hospitals in
Senhance System, coupled with the already available 3mm instruments will prove
to be an effective tool in surgery with smaller patients.
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On
diameter articulating instruments, offering better access to difficult-to-reach
areas of the anatomy by providing two additional degrees of freedom. These
instruments have previously received CE Mark for use in the EU.
The Company believes that future outcomes of minimally invasive laparoscopic
surgery will be enhanced through its combination of more advanced tools and
robotic functionality, which are designed to: (i) empower surgeons with improved
precision, dexterity and visualization; (ii) improve patient satisfaction and
enable a desirable post-operative recovery; and (iii) provide a cost-effective
robotic system, compared to existing alternatives today, for a wide range of
clinical indications.
From our inception, we devoted a substantial percentage of our resources to
research and development and start-up activities, consisting primarily of
product design and development, clinical studies, manufacturing, recruiting
qualified personnel and raising capital. We expect to continue to invest in
research and development and market development as we implement our strategy.
Since inception, we have been unprofitable. As of
accumulated deficit of
Recent Financing Transactions
At-the -Market Offerings
On
Agreement (the “2022 Sales Agreement”), with
“2022 ATM Offering”) pursuant to which the Company could sell from time to time,
at its option, up to an aggregate of
common stock. No sales of common stock were made under the 2022 ATM Offering
during the three and nine months ended
Results of Operations – Comparison of Three Months Ended
2021
Revenue
In the third quarter of 2022, our revenue consisted of the sale of a Senhance
System, ongoing System leasing payments, sales of instruments and accessories,
and services revenue for Systems sold or placed in
prior periods.
Product revenue remained consistent at
revenue decreased to
compared to
revenue remained consistent at
30, 2022
ended
fluctuations in exchange rates.
Cost of Revenue
Cost of revenue consists of contract manufacturing, materials, labor, and
manufacturing overhead incurred internally to produce the products. Shipping and
handling costs incurred by the Company are included in cost of revenue. We
expense all inventory obsolescence provisions as cost of revenue. The
manufacturing overhead costs include the cost of quality assurance, material
procurement, inventory control, facilities, equipment depreciation and
operations supervision and management. We expect overhead costs as a percentage
of revenues to decline as our production volume increases. We expect the cost of
revenue to increase in absolute dollars to the extent our revenues grow and as
we continue to invest in our operational infrastructure to support anticipated
growth.
Product cost for the three months ended
million
2021
inventory reserve of
of
Service cost for the three months ended
at approximately
2021.
Lease cost remained consistent at
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Table of Contents Research and Development
Research and development, or R&D, expenses primarily consist of engineering,
product development and regulatory expenses incurred in the design, development,
testing and enhancement of our products and legal services associated with our
efforts to obtain and maintain broad protection for the intellectual property
related to our products. In future periods, we expect R&D expenses to continue
to increase as we continue to invest in additional regulatory approvals as well
as new products, instruments, and accessories to be offered with the Senhance
System. R&D expenses are expensed as incurred.
R&D expenses for the three months ended
million
2021
development in the areas of robotics and digital technologies supporting the
growth of the Senhance System and ISU digital and cloud capabilities. All
activities are in the effort of building the future for Performance-Guided
Surgery. The
engineering services, consulting, and other outside services of
The change was also driven by increased personnel costs of
by additional headcount as well as the transfer of employees within functional
areas due to the evolving nature and commercialization of our business, and
increased supplies costs of
Sales and Marketing
Sales and marketing expenses include costs for sales and marketing personnel,
travel, demonstration product, market development, physician training,
tradeshows, marketing clinical studies and consulting expenses.
Sales and marketing expenses for the three months ended
2021 remained consistent at
General and Administrative
General and administrative expenses consist of personnel costs related to the
executive, finance, legal and human resource functions, as well as professional
service fees, legal fees, accounting fees, insurance costs, and general
corporate expenses.
General and administrative expenses for the three months ended
2022
ended
decreased stock compensation expense, partially offset by increased personnel
costs driven by changes in headcount as well as the transfer of employees within
functional areas due to the evolving nature and commercialization of our
business.
Amortization of Intangible Assets
Amortization of intangible assets for the three months ended
decreased to
the foreign currency exchange rate.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration in connection with the
Senhance Acquisition was a
ended
market assumptions utilized in the valuation of fair value of the contingent
consideration, including the Company’s forecast of future product revenue and
the discount rate.
Other Income (Expense), net
Other income for the three months ended
million
Other income for the three months ended
the
Retention Tax Credit (“ERTC”) provision from the CARES Act. No related income
was recorded in the three months ended
Income Tax Expense
The Company recognized
ended
three months ended
Results of Operations – Comparison of Nine Months Ended
2021
Revenue
In the nine months ended
of a Senhance System, ongoing System leasing payments, sales of instruments and
accessories, and services revenue for Systems sold or placed in
and the
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Product revenue for the nine months ended
million
The
prior period.
Service revenue for the nine months ended
million
The fluctuations in service revenue for the three months ended
2022
exchange rates.
Lease revenue for the nine months ended
consistent at
Cost of Revenue
Cost of revenue consists of contract manufacturing, materials, labor, and
manufacturing overhead incurred internally to produce the products. Shipping and
handling costs incurred by the Company are included in cost of revenue. We
expense all inventory obsolescence provisions as cost of revenue. The
manufacturing overhead costs include the cost of quality assurance, material
procurement, inventory control, facilities, equipment depreciation and
operations supervision and management. We expect overhead costs as a percentage
of revenues to decline as our production volume increases. We expect cost of
revenue to increase in absolute dollars to the extent our revenues grow and as
we continue to invest in our operational infrastructure to support anticipated
growth.
Product cost for the nine months ended
million
2021
personnel costs, which is driven by the transfer of employees within functional
areas due to the evolving nature and commercialization of our business. The
decrease is also driven by a
primarily related to a Lease Buyout in the prior period. These decreases are
partially offset by a
million
expenses.
Service cost for the nine months ended
million
2021
personnel-related costs of
under maintenance plans, which are expensed when incurred, along with salaries
for the field service teams.
Lease cost for the nine months ended
consistent at
Research and Development
Research and development, or R&D, expenses primarily consist of engineering,
product development and regulatory expenses incurred in the design, development,
testing and enhancement of our products and legal services associated with our
efforts to obtain and maintain broad protection for the intellectual property
related to our products. In future periods, we expect R&D expenses to continue
to increase moderately as we continue to invest in additional regulatory
approvals as well as new products, instruments, and accessories to be offered
with the Senhance System. R&D expenses are expensed as incurred.
R&D expenses for the nine months ended
million
2021
development in the areas of robotics and digital technologies supporting the
growth of the Senhance System and ISU digital and cloud capabilities. All
activities are in the effort of building the future for Performance-Guided
Surgery. The
costs of
employees within functional areas due to the evolving nature and
commercialization of our business. The change was also driven by an increase in
contract engineering services, consulting, and other outside services costs of
costs of
Sales and Marketing
Sales and marketing expenses include costs for sales and marketing personnel,
travel, demonstration product, market development, physician training,
tradeshows, marketing clinical studies and consulting expenses.
Sales and marketing expenses for the nine months ended
increased 7% to
ended
increased consulting costs of
million
decreased supplies costs of
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Table of Contents General and Administrative
General and administrative expenses consist of personnel costs related to the
executive, finance, legal and human resource functions, as well as professional
service fees, legal fees, accounting fees, insurance costs, and general
corporate expenses.
General and administrative expenses for the nine months ended
increased 15% to
ended
increased personnel costs of
as the transfer of employees within functional areas due to the evolving nature
and commercialization of our business. The change was also driven by an increase
in software costs of
increased travel costs of
million
Amortization of Intangible Assets
Amortization of intangible assets for the nine months ended
decreased to
the foreign currency exchange rate.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration in connection with the
Senhance Acquisition was a
assumptions utilized in the valuation of fair value of the contingent
consideration, including the Company’s forecast of future product revenue and
the discount rate.
Property and Equipment Impairment
During the nine months ended
impairment charge of
equipment to its estimated fair value. The property and equipment is associated
with operating leases that did not elect to renew their agreements. No
impairment charge was recognized for the nine months ended
Other Income (Expense), net
The Company recognized
ended
2021
partially offset by the change in the fair value of Series B Warrants of
million
Income Tax (Expense) Benefit
The Company recognized
months ended
Liquidity and Capital Resources
The Company had an accumulated deficit of
sufficient revenues to cover its operating costs and believes it will require
additional capital in the future to proceed with its operating plan. As of
investments and long-term investments, excluding restricted cash, of
approximately
The Company believes the COVID-19 pandemic and other geopolitical factors will
continue to negatively impact its operations and ability to implement its market
development efforts, which will have a negative effect on its financial
condition.
While the Company believes that its existing cash, cash equivalents, short-term
and long-term investments, as of
filing, will be sufficient to sustain operations for at least the next 12 months
from the issuance of these financial statements, the Company believes it will
need to obtain additional financing in the future to proceed with its business
plan. Management’s plan to obtain additional resources for the Company may
include additional sales of equity, traditional financing, such as loans, entry
into a strategic collaboration, entry into an out-licensing arrangement or
provision of additional distribution rights in some or all of our markets.
However, management cannot provide any assurance that the Company will be
successful in accomplishing any or all of its plans.
The Company is subject to risks similar to other similarly sized companies in
the medical device industry. These risks include, without limitation: negative
impacts on the Company’s operations caused by the COVID-19 pandemic and other
geopolitical factors; the historical lack of profitability; the Company’s
ability to grow its placements and increase utilization of the Senhance System
by customers, the Company’s ability to raise additional capital; the success of
its market development efforts; its ability to successfully develop, clinically
test and commercialize its products; the timing and outcome of the regulatory
review process for its products; changes in the health care and regulatory
environments of
countries in which the Company operates or intends to operate; its ability to
attract and retain key management, marketing and scientific personnel; its
ability to successfully prepare, file, prosecute, maintain, defend and enforce
patent claims and other intellectual property rights; its ability to
successfully transition from a research and development company to a marketing,
sales and distribution concern; competition in the market for robotic surgical
devices; and its ability to identify and pursue development of additional
products.
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Sources of Liquidity
Our principal sources of cash to date have been proceeds from public offerings
of common stock, incurrence of debt, the sale of equity securities held as
investments and asset sales.
Consolidated Cash Flow Data
Nine Months Ended September 30,
(Unaudited, in millions) 2022 2021
Net cash (used in) provided by
Operating activities $ (44.9 ) $ (27.5 )
Investing activities 41.2 (89.0 )
Financing activities (0.3 ) 160.1
Effect of exchange rate changes on cash and cash
equivalents (0.3 ) (0.2 )
Net (decrease) increase in cash, cash
equivalents and restricted cash $ (4.3 ) $ 43.4
Operating Activities
For the nine months ended
of
assets and liabilities of
million
of intangible assets,
million
premiums on investments,
offset by
decrease in cash from changes in operating assets and liabilities primarily
relates to a
million
transfers to property and equipment,
lease liabilities, offset by
million
in accrued expenses, and
receivable.
For the nine months ended
of
generated from changes in operating assets and liabilities of
non-cash items of
million
intangible assets,
consideration, and
gain on extinguishment of debt. The increase in cash from changes in operating
assets and liabilities primarily relates to a
lease liabilities, a
assets, a
prepaid expenses, and a
a
increase in inventory net of transfers to property and equipment, a
increase in tax credit receivable, a
and a
Investing Activities
For the nine months ended
activities was
from maturities of available-for-sale investments, offset by
purchases of available-for-sale investments and
property and equipment.
For the nine months ended
activities was
of available-for-sale investments and
equipment.
Financing Activities
For the nine months ended
activities was
of vesting of restricted stock units.
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For the nine months ended
activities was
million
aggregate proceeds from the exercise of Series B, C and D warrants, partially
offset by
of restricted stock units.
Operating Capital and Capital Expenditure Requirements
We intend to spend substantial amounts on research and development activities,
including product development, regulatory and compliance, and clinical studies.
We intend to use financing opportunities strategically to continue to strengthen
our financial position.
Cash and cash equivalents held by our foreign subsidiaries totaled
as of
currently foresee a need to repatriate cash and cash equivalents held by our
foreign subsidiaries. If these funds are needed in
that the potential
immaterial.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations
set forth above under the headings “Results of Operations” and “Liquidity and
Capital Resources” have been prepared in accordance with
read in conjunction with our financial statements and notes thereto appearing in
this Form 10-Q and in the Fiscal 2021 Form 10-K. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our critical accounting policies and estimates, including identifiable
intangible assets, contingent consideration, stock-based compensation,
inventory, revenue recognition and income taxes. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. A more detailed discussion on the
application of these and other accounting policies can be found in Note 2 in the
Notes to the Financial Statements in this Form 10-Q. Actual results may differ
from these estimates under different assumptions and conditions. There have been
no new or material changes to the critical accounting estimates discussed in our
Annual Report on Form 10-K for the fiscal year ended
of significance, or potential significance, to us.
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