Stereotaxis, Inc. 10-Q Summary: Period Ended September 30, 2009
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Stereotaxis, Inc., a developer of magnetic navigation systems for interventional cardiology (NIOBE, ODYSSEY, and CINEMA systems). The report covers the three and nine months ended September 30, 2009. The company is classified as an accelerated filer and is not a shell company. As of October 31, 2009, there were 50,258,451 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Revenue | $13.29 million | $37.07 million |
| Gross Margin | $9.01 million (68%) | $24.66 million (67%) |
| Operating Loss | $(4.24) million | $(18.02) million |
| Net Loss | $(5.81) million | $(20.78) million |
| Net Loss Per Share (Basic/Diluted) | $(0.14) | $(0.50) |
| Cash and Equivalents (End of Period) | $12.01 million | |
| Total Debt (Short + Long Term) | $30.79 million | |
| Working Capital | $1.36 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 26% year-over-year for the quarter and 31% for the nine-month period. System sales rose 18% (quarter) and 21% (nine months), driven by higher average revenue per system and increased unit sales of NIOBE, ODYSSEY, and CINEMA. Disposable and service revenue grew 45% (quarter) and 56% (nine months) due to an expanding installed base.
- Expense Reduction: Operating expenses decreased significantly. R&D expenses fell 25% (quarter) and 26% (nine months) due to project completions. Sales and marketing expenses dropped 10% (quarter) and 8% (nine months). G&A expenses declined 23% (quarter) and 29% (nine months), largely due to reduced non-cash compensation and headcount.
- Liquidity Shift: Cash and cash equivalents decreased from $30.36 million at year-end 2008 to $12.01 million at September 30, 2009. Working capital contracted from $23.3 million to $1.36 million, primarily due to cash burn from operations and the reclassification of $4.8 million of warrants from equity to current liabilities under new accounting guidance.
- Debt Structure: Total debt increased to $30.79 million. This includes a $16.2 million balance on a revolving credit facility and approximately $14.1 million owed to Biosense Webster (royalty advances and deferred R&D expenses).
Guidance, Outlook, and Risks
- Outlook: Management expects negative cash flow from operations to continue throughout 2009. They anticipate R&D and G&A expenditures will decrease, while sales and marketing expenses will increase to support commercialization.
- Financing: In October 2009 (subsequent to the period end), the company completed a public offering of 7,475,000 shares, raising approximately $28 million net of fees. Additionally, the primary lender committed to extending the working capital line to March 31, 2011, and increasing availability to $30 million.
- Risks: The company faces liquidity risks if additional financing is not available on acceptable terms. There is exposure to foreign exchange fluctuations (approx. 25% of revenue in foreign currencies) and interest rate risk on variable-rate debt, though floors exist on interest rates. The company relies on third-party financing and may need to delay R&D or commercialization if funds are insufficient.
- Unusual Items: A significant non-cash adjustment occurred due to the reclassification of warrants issued in December 2008 from equity to a current liability ($4.99 million) following the adoption of new accounting standards regarding derivative instruments. This impacted the balance sheet but not the net loss directly, though warrant amortization increased interest expense.
Investor Verification Checklist
- Cash Runway: Verify the impact of the October 2009 $28 million equity raise on the company's liquidity position and ability to fund operations through 2010.
- Debt Covenants: Confirm continued compliance with the "tangible net worth" covenant and other requirements of the Silicon Valley Bank credit agreement and the Biosense Webster agreement.
- Revenue Recognition: Review the timing of revenue recognition for system sales, particularly regarding installation completion criteria for NIOBE, ODYSSEY, and CINEMA systems.
- Warrant Liability: Monitor the fair value adjustments of the derivative warrants classified as liabilities, as fluctuations in stock price will impact "Other income (expense)" and net loss.
- Biosense Webster Recoupment: Track the quarterly "Supplemental Payments" required to Biosense Webster starting May 2010, which depend on royalty recoupment levels.