Mark Klausner - Investor Relations, Managing Partner at Westwood Partners Todd Pope - President, Chief Executive Officer, Director Joe Slattery - Chief Financial Officer, Executive Vice President, IR Contact Officer

Drew Ranieri - Stifel Glenn Navarro - RBC Capital Markets Greg Chodaczek - CRT Capital

Good morning and thanks for joining us today for TransEnterix second quarter conference call. Joining us on today's call are TransEnterix's President and Chief Executive Officer, Todd Pope and its Executive Vice President and Chief Financial Officer, Joe Slattery.

I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website for approximately 90 days.

To access the webcast, please visit the events link in the IR section of our website, transenterix.com. Before we begin, I would like caution listeners that certain information discussed by management during this conference call are forward-looking statements covered under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's businesses. The company undertakes no obligation to update information provided on this call.

For a discussion of risks or uncertainties associated with TransEnterix business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year ended December 31, 2014 and the Form 10-Q for the quarter ended June 30, 2015 expected to be filed on or about August 6, 2015. With that, it's my pleasure to turn the call over to TransEnterix's President and Chief Executive Officer, Todd Pope.

Good afternoon. Thank you for joining us today to discuss our operating and financial results for the second quarter.

On today's call, I will begin with an update regarding our SurgiBot system and the operating progress we have made in the second quarter before handing the call over to Joe who will review our financial results. Then I will wrap up and open up the line to take any questions.

I would like to start with an update regarding SurgiBot. I am pleased that we submitted our 510(k) to the FDA for the SurgiBot system on June 1, which was in line with the timing that we provided on our last quarterly call.

We received confirmation on June 15 from the FDA that our submission was accepted for substantive review. With this significant milestone behind us, our focus has shifted to preparing to work with the FDA to obtain clearance and building our commercial infrastructure.

While we await communications from the FDA, we are working to be prepared to address any additional information request in a timely manner. We continue to expect that w will obtain clearance for the SurgiBot in six to nine months from our June 15's acceptance date.

At the same time, we are increasing our focus on preparing for commercialization. As we have previously stated, we are currently anticipating launching the SurgiBot in the second quarter of 2016.

While there are a number of strategic priorities we will need to complete as a part of the preparation for and execution of a commercial product launch, our two key priorities at this time are building out our sales team and developing manufacturing capability. Our first priority on the sales front is to recruit a Vice President of Sales.

We have been actively working on this hiring and I am enthusiastic about the quality of candidates we are seeing. We would anticipate having this person on board within the next couple of months.

Once the sales leadership is in place, we will begin to develop a sales force structure and fill out the team. We are acutely aware of the sales team's role in the success of the SurgiBot and as such, we are working to build out a best-in-class team with a proven capital sales track record.

In addition to building out our sales team, we are scaling up our manufacturing capabilities for the SurgiBot. As many of you know, we have significant experience manufacturing the SurgiBot and associated instruments as a result of the production requirements while preparing our 510(k) submission.

We plan on leveraging that experience as we scale our manufacturing capacity. Before I turn the call over to Joe, I would like to share my perspective on the FDA's recently held public workshop entitled, Robotically-Assisted Surgical Devices: Challenges and Opportunities.

The purpose of this workshop was to obtain public feedback on scientific, clinical and regulatory considerations associated with robotic surgical devices. From my perspective, there were several key observations.

First, the invited surgeon experts emphasized their perspective that robotic systems are surgical tools which perform task similar to many of the tools commonly used in laparoscopic surgery. As such, the surgeons want to retain the latitude to decide how best to utilize these systems, once cleared by the FDA.

Second, the surgeon consensus was that bench, preclinical and cadaver testing were sufficient to demonstrate the ability of a robotically assisted surgical device to perform common task in a laparoscopic surgery. Finally, they felt that training on robotic system should be focused on how to operate the device to perform common surgical task rather than teaching specific procedures.

As it pertains the SurgiBot, I was encouraged that many of the comments at the workshop were aligned with our regulatory strategy and the filing we have submitted on SurgiBot. While there were no official action plans that came out of the meeting, we view it as a positive side that the FDA is proactively focused on the increasing role that robotics will play in the medical device industry.

I would now like to turn the call over to Joe to review our financial results.

Thanks, Todd. In the second quarter of 2015, we recognized no revenue or cost of goods sold as our efforts remain focused on the developing of SurgiBot.

Research and development expenses were $6.6 million in the second quarter of 2015, compared with $7.9 million in the second quarter of 2014. The decrease in R&D spend resulted primarily from decreased parts, supplies and personnel related expenses partially offset by increases in contract and consulting service expenses related to the development of the SurgiBot system.

Sales and marketing expenses declined slightly to $373,000 for the second quarter in comparison to $461,000 in the prior year period. General and administrative expenses were $2.1 million in the second quarter of 2015 as compared to $1.9 million in the prior year period.

The increase was primarily due to increased stock compensation and consulting costs, partially offset by decreased public company costs. Net loss was $9.3 million in the second quarter of 2015, compared to a net loss of $10.6 million in the second quarter of 2014.

On a per share basis, the net loss was $0.14 in the second quarter based on a fully diluted share count of 68.1 million shares compared to $0.18 in the prior year period based on a fully diluted share count of 59.7 million shares. Looking at the balance sheet.

We finished the quarter with $71.1 million in cash and cash equivalents. During the second quarter of 2015, our cash increased by $42.7 million, which represents approximately $7.9 million in cash used for operations and approximately $156,000 in property and equipment investment, offset by the net proceeds from the issuance of common stock of approximately $50.8 million.

In July, the underwriters partially exercised their option to purchase additional shares granted at the time of the public offering, resulting in additional net proceeds of $5.8 million. Our strong cash position allows us to invest appropriately in the activities to launch the SurgiBot and demonstrate early clinical success.

I will now hand the call back to Todd.

Thanks, Joe. We are very pleased with our accomplishments during in the quarter and in particular the submission of our 510(k) to the FDA.

We will now focus on working with the FDA to achieve clearance of the SurgiBot in preparing for commercialization. These are exciting times to TransEnterix and I am enthusiastic to be making the transition into the next chapter for our company.

With that, I would like to turn it over to the operator and take your questions.

Hi, Todd and Joe. This is Drew, in for Rick.

Just a couple of questions. The first is, I think last quarter you talked about clinicians coming in to kick the tires on SurgiBot who weren't involved in the system's development process.

Just curious as to how that's been progressing over the past quarter? And has there been any additional inbound interest in doing this post the FDA workshop?

Hi Drew. This is Todd.

As a part of our normal course of business that we have surgeons continue to come in pretty much on the week-in, week-out basis to take a look at the system. The feedback continues to be very positive, especially around the fact that you were allowing them to stay scrubbed into t the sterile field and they continue to be impressed that we have replicated laparoscopic surgery in the movements of the SurgiBot.

Those are the two feedbacks we continue to hear from even folks that are newly shown the system. And we have not had any spike in those requests post the FDA forum.

Just a continued stream.

Okay. Thanks.

And then just a second question. Can you just talk about where you are in the development phase for SurgiBot's advanced energy and bipolar devices?

Should we still expect SurgiBot to launch these devices?

Yes on both of those devices. We plan on those launches coinciding with the launch of SurgiBot.

All right. Great.

Thank you.

Thanks, Drew.

Hi. Good afternoon, guys.

First question has to do with that the FDA filing. So the FDA accepted the file on June 15.

Have you had any more communication with the FDA? And then what should we expect would be next from the FDA?

Thanks.

Yes. Thank you, Glenn.

We have not heard anything back from our acceptance since June 15 and that's pretty normal, for sure. So what we usually go through is a timeframe of about 60 days from that standpoint, when they will take a look at the file and then come back to the company with additional information request.

And so we expect that probably sometime in August. And then the clock will stop.

And then we will have an opportunity to respond to that. And then send that back in.

And then the clock will begin again counting down to the total of 90 days.

Okay. And just as a follow-up.

Whatever type of response you get form the FDA, is that something that you would put in a press release? Or would this be discussed with the Street on your next earnings call in November?

Yes. The details of any update and those content is hard to say what those will be.

So right now, we will plan on our next conference call.

Okay. And are you still confident that you will be able to get a general surgery claim for the SurgiBot?

Yes. Nothing's really changed from last call to address any changes in anticipation there.

So yes, we are still confident in that.

All right. And then my final question is, if you go about hiring a sales team, can you put some numbers around that?

How many direct reps that you plan to hire in 2016?

Yes. What we have said is that we want get our VP of Sales in here.

And we talked about that timing and then consistent with our last call, we probably want to have around five hired by the time of launch. And then, we will roll them out from there depending on our sales ramp.

But we really want to try to get that number of reps in here prior to launch. We think that's a good way to start.

Okay. Great.

Thanks for taking my questions.

Yes. Thanks, Glenn.

Good afternoon. First off, I just wanted to make sure I heard it right, Joe, that the cash burn was about roughly 8 million for the quarter?

That's right.

Okay. Great.

And then $8 million to $10 million is still the right way to think about that going forward through to 2016 and with the launch alter in the year?

$8 million to $10 million through the end of this year. We haven't really talked specifically about next year and launch is plan for Q2 of next year.

Okay. Great.

And then Todd, just going to the FDA robotics meeting, you mentioned one of the parts of the focus of the meeting was on training. And I guess could you just remind us how the SurgiBot maybe differentiated from a training perspective?

Absolutely. The most feedback we have been receiving from surgeons that interact with the system is, since it replicates laparoscopic surgery movements and that's what a vast majority of these folks' practice is made out and the fact that it allows them to stay scrubbed into the sterile field.

The surgeons that have interacted with the system feel like that the training hurdles would be fairly low just because it adds familiarity and we certainly felt like we heard that reiterated at the public workshop, for sure.

Okay. Great.

And then just one more, one thing that we have noticed is hernia is definitely becoming a more notable robotic procedure. Can you just, I guess broadly speaking, tell us how SurgiBot might be able to participate in that?

Yes. We have not really talked a lot about the procedure specific performance.

I think we want to get our approval and take a look at that and then get it out in the market. So we probably won't comment on any particular procedure and how we think it might be adopted.

But we are certainly looking forward to getting clearance and getting it out in the market.

Okay. Thank you very much.

Thanks, John.

Thanks. Good afternoon.

To follow-up on Drew's question, in terms of one this is the cleared by the FDA, does the full toolset also cleared by the FDA? I think there's nine tools right now.

Is that the way we should be looking at it?

Yes. That is the way you should be looking at it.

That's correct.

Okay. And in terms of, you were talking about manufacturing capabilities, what should we expect?

I know this is 2016 and Joe doesn't like to talk about it. But in terms of manufacturing in 2016, how many systems, if there is a big demand and I know that's a nice problem to have, will you be able to fill that demand?

Yes. Over the last year, Greg, we have really expanded our manufacturing and inspection footprint and we have added warehouse space.

This is all over the course of last 15 months in preparation for launch. So we still have our own internal machine shop.

So we have expanded on that with the number of mills and lays and other equipment. And it's nice to have a machine shop capability that allows us to rapidly prototype.

Bu it also gives us a lot of flexibility in terms of manufacturing small lots and load-balancing. We have expanded the team recently in inventory management supply chain.

And I think we are in good shape for addressing demand requirements for next year.

So in terms of sales for next year, it's not going to be one in Q2, one in Q3. It could be larger, if it's cleared and the demand is there?

Yes. I think what you have to remember is that there is no scenario where we wake up one morning and we have an order for five that we didn't know was coming the day before.

So we will have good visibility going into the first quarter of launch as far as what our expectations are. We will be building into that leading into the launch.

Okay. And maybe you have talked about this in the past, but in terms of the instrument sets, is it going to be similar to your competitor where instruments are used 20 times or is this disposables?

We have a mix. Not so much would a hard counter, but in general we have mix of routinely recurring use instruments and disposable instruments.

Okay. And in terms of stapler, if a surgeon needs a stapler now, I know you don't have one they can use, a laparoscopic version.

Is that how you would advise a surgeon, if they do need stapling?

Yes. It would be just like it's been for the last eight or 10 years in the robotic marketplace.

Surgeons will use off-the-shelf stapler through a separate port.

Right. But you have one port.

So they are going to have to add, there is going to be a separate port for that stapler?

That's right.

Okay. And Todd, I know you were talking about procedures, but getting back to the meeting from last week, with most of the surgeons talking about, this is a tool, give me the tool, I know better how to use the tool than the FDA will tell me how to use that tool.

Do you see surgeons taking the SurgiBot more to expand just from this general surgery and trying different things or different procedures?

I think since the SurgiBot replicates laparoscopic surgery, they are going to look at their practice and what procedures have heavy laparoscopic penetration and decide what future benefits out of the SurgiBot might provide a for them and their patient. And that's how the filter they will use when they are thinking about where to use it.

Okay. I will jump back in the queue.

Thanks, guys.

Thanks, Greg.

Thanks, Greg.

Thank you all for joining us today on our second quarter 2015 results call. We look forward to updating you on our progress on the next call.

Thank you.