Vicarious Surgical, Inc. (NYSE:RBOT) Q4 2022 Earnings Conference Call February 13, 2023 4:30 PM ET
Company Participants
Kaitlyn Brosco – IR
Adam Sachs – Co-Founder, CEO, President & Director
William Kelly – CFO & Treasurer
Conference Call Participants
Ryan Zimmerman – BTIG
Eric Anderson – Cowen and Company
Adam Maeder – Piper Sandler & Co.
Kyle Rose – Canaccord Genuity
Operator
Good afternoon, and welcome to the Vicarious Surgical’s Fourth Quarter 2022 Earnings Conference Call. My name is Tia, and I will be your operator for today’s call. [Operator Instructions].
I would now like to turn the call over to Kaitlyn Brosco with Vicarious Surgical for a few introductory comments. Please proceed.
Kaitlyn Brosco
Thank you, Tia, and thank you all for participating in today’s call. Earlier today, Vicarious Surgical released financial results for the 3 months and full year ended December 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 description of the risks and uncertainties associated with our business, please refer to the risk factors set forth in our Securities and Exchange Commission filings, including our most recent Form 10-K and Form 10-Q. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 13, 2023. 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.
With that, I’ll turn the call over to Adam Sachs, Chief Executive Officer.
Adam Sachs
Thanks, Kate. Good afternoon, everyone, and thank you for joining our full year 2022 earnings call. In 2022, our first full year as a public company, I’m pleased to share that we made significant progress toward our objectives of finalizing the Vicarious Surgical system, preparing for regulatory review and expanding our surgeon and health system relationships as part of early commercial readiness. I’ll start by reviewing our key accomplishments before discussing our early progress and outlook for 2023.
First and foremost, we met our development time lines and made substantial progress toward a commercial-ready system. Following the completion of Beta 1 in 2021, we collected considerable hospital and surgeon feedback from our partners and performed extensive cadaveric testing to inform the finalization of Beta 2. Our development work culminated in the use of Beta 2 to successfully perform cadaveric ventral hernia procedures at Tufts Medical Center.
The procedures were performed by Dr. Igor Bellinski, a world-renowned expert in robotic abdominal wall reconstruction and leader of our surgeon Luminary Group, which I’ll touch upon in a moment. We were pleased to showcase the video of these procedures during our December System Demonstration Day, at which we hosted representatives from university hospitals to highlight the potential future application of the Vicarious system in a hospital setting.
Next, we established partnerships with innovative providers to meet the needs of surgeons and hospitals that ultimately, build the foundation for accelerated adoption. Early in the year, we announced the formation of our surgeon Luminary Group, 20 of the most talented, experienced and innovative surgeons, tasked with providing critical expertise to guide all clinical aspects of our technology.
Later in the year, we announced agreements with 3 of the top health care networks in the country, HCA Healthcare, university hospitals in Pittsburgh Creates. Through these multiyear agreements, we were able to leverage the resources and expertise of our partners to support system development, regulatory clearance and commercial launch.
In addition, we added critical expertise to our leadership team with the appointment of John Mazzola as Vice President of Operations; and Beverly Huss and Victoria Carr-Brendel as members of the Board of Directors. We are thrilled to have these industry veterans on board to guide our company through the next phase of development to launch.
In sum, 2022 was a transformational year for Vicarious Surgical. And although it’s early in the year, I’m pleased to report that our progress continues into 2023.
With the Beta 2 system complete, we are diligently working toward our next system, v1.0. As part of these efforts, we have hosted conversations and Beta 2 system experiences with our surgeon Luminary Group and each of our Center of Excellence partners at our headquarters to capture further feedback on which we can iterate.
Feedback remains positive, and we are now in the phase of utilizing constructive takeaways to execute modest adjustments to the system arms, improvements to the patient cart docking and our approach to patient access. Today, we are excited to share that we remain on track for v1.0 finalization in the first half of 2023.
While our team remains hard at work advancing the system, I’d like to provide an update on the steps we are taking as a company to optimize our cash runway in adaptation to today’s macro environment. As everyone here knows, we are operating in a very different economy than 2 years ago when we took our company public. The cost of capital has dramatically increased, particularly for pre-revenue and emerging growth companies and thus, the meaning of efficient use of capital has dramatically changed as well.
While previously, it made sense for the company to deploy greater resources and parallel path multiple contingencies in order to absolutely minimize time line risk wherever possible. In the current market environment, fiscal discipline requires a much more lean approach, focused on growing equity value and minimizing dilution.
With that in mind, we have taken thoughtful steps to optimize our burn and extend our cash runway. We have streamlined our internal teams via a measurable reduction in total headcount, predominantly across SG&A, and we have reduced external spending as well. In this way, we are reducing our burn while focusing investment on our critical business initiatives.
While we have intentionally structured these changes to preserve our development and regulatory time lines, understand that the reduction in resources, specifically the reduction of future planned spending does naturally introduce additional time line risk. That being said, we are confident in the team we have in place and their ability to execute, innovate and adapt when required as they demonstrated throughout all of 2022.
Closing with our regulatory progress, our conversations with the FDA have remained enthusiastic and we are pleased with the level of collaboration in support of bringing our differentiated technology to market. Our process has involved significant open dialogue with the agency, and we’re pleased to share that we are mirroring the completion of our latest pre-submission. We look forward to providing further updates once our clinical protocol is finalized and we are able.
With that, I’ll hand it over to Bill for a discussion of our fourth quarter and full year financial results.
William Kelly
Thank you, Adam, and thank you all for joining us today. I’ll start with the full year 2022 results before touching upon cash burn and those cost-saving efforts Adam alluded to earlier. Total operating expenses for the full year 2022 were $80.1 million, a 110% increase from the $38.2 million in 2021. R&D expenses for the full year were $43.9 million compared to $22.1 million in 2021.
General and administrative expenses for the full year were $29.7 million compared to $13.2 million in 2021. Sales and marketing expenses for the full year were $6.5 million compared to $3.0 million in 2021. The increase in operating expenses for the full year can be primarily attributed to headcount growth and professional services expenses related to becoming a public company.
Adjusted net loss for the full year was $78.8 million, equating to an adjusted net loss of $0.65 per share as compared to an adjusted net loss of $38.3 million or an adjusted loss of $0.40 per share for the prior year. GAAP net income for the full year was $5.2 million due to an $84 million gain in the fair value of our warrant liability for the period, equating to net income of $0.04 per share. This compares to a net loss of $35.2 million or a loss of $0.36 per share for the prior year. For a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release.
At the start of 2022, we set full year cash burn guidance of $65 million to $75 million, and later tightened this range down to $65 million to $70 million. I’m happy to report we delivered on our guidance as our full year 2022 cash burn was $67 million.
Furthermore, in the fourth quarter, we filed a shelf registration with the SEC that included an ATM facility. Utilizing this facility, we were able to opportunistically convert $10 million of inbound investor demand that reduced our net burn down to $57 million for the year.
Based upon the cost reduction initiatives that Adam touched upon, including a 14% reduction in force, our full year 2023 cash burn is now expected to be between $55 million and $65 million. As we ended 2022 with $116 million on the balance sheet, we now have roughly 2 years of cash runway.
With these changes and our progress to date, we are confident that the future of Vicarious Surgical is bright. We look forward to continuing to provide updates as we execute on our business initiatives in the quarters ahead.
And with that, I will turn the call back to Adam. Adam?
Adam Sachs
Thanks, Bill. To our employees, partners and investors that were with us throughout 2022, including those employees that were part of our reduction in force, I’m incredibly appreciative for your support and hard work. 2022 is a transformative and successful year for our company, driven by our team’s ability to deliver on a number of value-add initiatives and execute and adapt throughout the iterative development process. We are excited to continue this work in 2023 and take the next steps towards regulatory submission.
Thank you again for joining today’s call. Operator, would you please open the line for questions?
Question-and-Answer Session
Operator
[Operator Instructions]. The first question comes from the line of Ryan Zimmerman with BTIG.
Ryan Zimmerman
Adam, so I want to start maybe on your comments around the parallel path changes that you did and just the impact to time lines as you see it. I understand the time lines are stable today as they are. But where do you see risk? I mean, specifically, what’s prompting that comment as you made those changes?
Adam Sachs
Yes. Thanks for the question, Ryan. So if we look back at the last year specifically, especially around the supply chain efforts, for example, there were a ton of incredibly effective risk mitigation efforts that we made around supply chain. Frankly, even before the situation became obvious to everybody, we were just doing these as a method to absolutely minimize the risk in our time line.
A lot of these initiatives involve parallel pathing different systems around verification and validation going forward in order to absolutely ensure success on the first try. And in the current market environment with the current cost of capital, it makes a lot more sense for us to take some modest amount of additional time line risk and bet on success around our initial design and bet on our own team to be able to quickly fix any issues that may come up throughout the pack.
Ryan Zimmerman
Okay. And so specifically, given those changes, and I think you’re still waiting on clarity from the FDA. It sounds like for the clinical trial, is that the case? Or at least to update investors publicly?
Adam Sachs
Yes. It’s — we’ve been back and forth a number of times, and there’s been — I mean, I keep using the word collaborative. But I think on the last call, the FDA really reiterated the fact that, a, they’re actually really excited about what we’re doing and our team emphasize that. And b, they reiterated their commitment to bringing medical devices to market via the least burdensome path that proves it safe and effective. And we’re going back and forth with them still to make sure we come up with that burdensome path.
Ryan Zimmerman
Okay. I’ll just sneak in one more, and then I’ll hop back in queue. But the difference between Beta 2 and the v1.0, it sounds like it was around the system arm, patient card docking, et cetera. Is there any impact from those changes to the agency and your submission to the agency that you think impact time lines? Or are these not material to the time line changes — or the time lines that you have in place, excuse me?
Adam Sachs
Yes. I — your question, I think, is obviously mostly focused on time line, and there’s no significant impacts of any of the changes in Beta 2 to version 1.0. I will share though that in each of these changes, both Beta 1 to Beta 2 and Beta 2 to version 1.0, we are really thoughtful about not just the surgeon and hospital feedback, but also ensuring that any impact that it might have on regulatory submission is, frankly, is positive. And the entire process of collecting all of this surgeon feedback is part of the formatted process that minimizes risk during the clearance as well.
Operator
The next question comes from the line of Josh Jennings from Cowen.
Eric Anderson
This is Eric on for Josh. With the Beta 2 system finalized, the design finalized, excuse me, and you’re focused now on completing version 1.0 of the system, could you help us understand what the remaining steps are for you to finalize v1.0 and just keep that within the time lines that you’ve said here?
Adam Sachs
Yes. So absolutely. We are pretty far along in the process of actually finalizing v1.0. We’ve already taken a ton of feedback over the second half of 2022, and all kind of culminating in that to Tufts Medical Center cadaver lab series and the demo day that we did around that.
We’ve taken that feedback, made a ton of relatively small design changes. And we — our aim is to keep them as subtle as possible to minimize the differences, focused on those areas around patient card and patient access. And the kind of subtle changes around the tools and end effectors.
We’ll then be taking — we’ll be hitting design lock in the next month or so around v1.0, building it out and bringing it through the verification validation process or at least starting that around the summer.
Eric Anderson
Okay. Great. And then maybe thinking about the demonstration day from December, what sort of feedback have you received from that event? Any inbound interest from folks who weren’t previously involved in communication with the company?
Adam Sachs
Yes, absolutely. So we’ve received a pretty good amount of inbound interest from the demonstration day across, frankly, everything from an inbound investor interest through hospitals and surgeons that have seen the videos and seen the progress of Beta 2 as well.
The feedback overall from the demonstration day has been entirely positive. The demo day was fantastic. The feedback around Beta 2 itself, I’d say, was pretty much entirely positive as well with subtle changes that people are looking for again around those areas I mentioned previously.
Operator
The next question comes from the late Adam Maeder with Piper Sandler.
Adam Maeder
A couple from me, and maybe we could just start with the cost reduction initiatives and the OpEx guide for ’23. So the OpEx guidance well below what we were modeling for spend this year. Heard some of the commentary around the cost reduction initiatives. But maybe just specifically frame up kind of what changed? Where those cost savings are? And kind of how do you kind of push your system forward without sacrificing quality of product or speed to market? And then I have a follow-up or 2.
William Kelly
Yes. Yes. No, I think, first of all, it was cash burn guidance, not OpEx guidance. So obviously, our cash burn is lower than our OpEx due significantly to noncash items like stock compensation, depreciation, that sort of thing. So $55 million, $65 million is the cap.
But I would say that in terms of the reduction in sports specifically, the source of the headcount reductions was largely focused on G&A and sales and marketing and actually, we’ll see increased spending in R&D. And really the thesis behind the whole thing was to really focus spending on those things that get the quality product out the door fast and divert resources in this economic environment to ensure that we deliver on those things.
Adam Maeder
Okay. That’s helpful, Bill. Thank you for clarifying my question there. And I guess I also just wanted to ask about kind of the message around time lines because on one hand, I kind of heard no change to previous time lines, but then I also heard — and hopefully, I’m recalling this correctly, but reduction of resources, maybe introducing some additional time line risk. So exactly what is the message from a time line standpoint? And do you still expect to make FDA submission for ventral hernia in late calendar ’24? And then I had 1 more follow-up.
William Kelly
Yes. I’m going to say…
Adam Sachs
I’m sorry, Bill. So I definitely want to emphasize that we are still on track for FDA submission in late calendar year ’24. The difference here is around some additional time line of risk. So to look forward at a few particular activities, we are — as Bill mentioned, we have significantly reduced SG&A spending. And that doesn’t really have any impact to time line risk going forward. I think a lot of those activities, frankly, have been successful so far, and some of the headcount was not necessary or not prudent in the current market environment.
Going forward, though, some of the reduced external spending budget that we have does have some additional time line risk around our ability to rapidly and quickly respond to anything that comes up during the VNB process.
So it is their — the time line that we have today is absolutely — it is still the same for filing around the end of 2024, but with some added risk that is in our ability to rapidly and quickly respond to issues as they come up through that process.
Adam Maeder
Okay. That’s helpful, Adam. I appreciate the extra color there. And then just one last one, if I can sneak it in. Good progress on the Beta 2 system productive demo day this past December. And it sounds like you’re targeting design lock for the 1.0 system in the next, you said, month or so. Maybe just talk about kind of the manufacturing process and building out the systems. What are the goals there? How many systems do you have to build for the clinical trial and just level of confidence that you can do so in a timely manner?
Adam Sachs
Yes, absolutely. The trial is likely to be, again, I’m saying likely because it does depend on the agency, likely to be just a small handful of systems. We’re confident in our ability to build those out. We built a handful of each of our builds today in-house.
The more challenging effort actually is around the consumables, the arms, the camera, the tools rather than the capital systems production. And we’re — we started building out the supply chain and the production lines for that around a year ago at this point. So we’re well on our way to building that out. We’ve actually had, at this point, full cameras with no support and assistance from our company produced by our main contract manufacturer, who is, frankly, one of the big CMs in the space. So we’re confident that within the time line, we’ll be able to ramp these CMs up. It’s frankly the reason we’re using them.
Operator
The next question comes from the line of Kyle Rose with Canaccord.
Kyle Rose
A lot has been asked, so I just wanted to ask two quick ones on the burn expectations. 14% RIF here, just — can you help us understand how that will affect the P&L, at least in the first quarter? I assume there will be some onetime charges in the Q1 related to that? And just how we should think about that moving forward? And then I’ll have one follow-up.
William Kelly
Yes. No, it’s a good question. I would say in terms of severance costs, exit cost, that sort of thing, should not be material, I’d say, less than $1 million in the quarter.
Kyle Rose
Okay. Great. And then I just wanted to make sure I understood the timing here. You’ve made the rift here to bring down burn, I understand the guidance, $55 million to $65 million this year. I think you ended the year about $116 million, $120 million in cash, and you’re talking about 2 years of cash.
I’m just trying to understand what we should think about burn expectations in ’24, given it sounds like that’s going to be the real year of the clinical trials and ramping up for FDA clearance and launch thereafter? So how should we think about the transition or the acceleration in burn as you move through ’24?
William Kelly
Yes. At this point, we’re not providing guidance on 2024. I think when we speak about 2 years of cash, that would be at 2023’s burn rate. So obviously, we’ve got a strong balance sheet right now. The changes that we’ve made. I think we feel strengthened our balance sheet and gives great flexibility in terms of investigating future financing in whatever form that might be for it gives us optionality. But at the moment, we’re not necessarily telegraphing that 2024, but same as 2023, but at least to frame up our current balance sheet, it’s 2 years’ worth of spend.
Operator
Thank you. There are no additional questions left at this time. That concludes today’s conference call. You may now disconnect your lines.
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