Stereotaxis, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and markets robotic magnetic navigation systems, including the Genesis RMN System, Niobe System, Odyssey Solution, related devices, and recurring service and disposable products for hospital interventional labs. The filing covers the three and six months ended June 30, 2020, compared with the corresponding 2019 periods. The installed base included 123 Niobe ES Systems at June 30, 2020.
Financial Results and Liquidity
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Total revenue | $5.3 million | $6.8 million | $11.1 million | $13.8 million |
| Gross margin | $4.3 million; 80% | $5.7 million; 83% | $9.1 million; 82% | $11.2 million; 81% |
| Operating loss | $(1.9) million | $(1.5) million | $(4.0) million | $(3.6) million |
| Net loss | $(1.9) million | $(1.4) million | $(3.9) million | $(3.6) million |
| Loss attributable to common stockholders | $(2.3) million | $(1.8) million | $(4.6) million | $(4.3) million |
| Loss per common share | $(0.03) | $(0.03) | $(0.06) | $(0.07) |
| Cash flow from operations | Not separately provided | Not separately provided | $(3.3) million | $(2.3) million |
- Revenue consisted primarily of disposables, service and accessories, which generated $5.1 million in the second quarter and $10.6 million year to date. Systems revenue was $12,769 in the quarter and year to date, while sublease revenue was $246,530 in the quarter and $493,060 year to date.
- Cash and cash equivalents were $44.0 million at June 30, 2020, compared with $30.2 million at December 31, 2019. Working capital was $39.4 million versus $26.7 million at year-end.
- Cash increased primarily from $15.0 million of net equity proceeds and $2.2 million of PPP loan proceeds. Operating activities used $3.3 million and investing activities used $70,896 during the first six months.
- Current liabilities included $2.2 million of short-term debt, $5.5 million of current deferred revenue and $2.3 million of current operating lease liabilities. Total liabilities were $15.7 million.
- The company received a $2.2 million Paycheck Protection Program loan. Management anticipated substantial forgiveness; any unforgiven amount bears interest at 1% and was scheduled for repayment beginning November 2020 through April 2022.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 21% year over year, primarily because COVID-19 reduced disposable procedure volumes. Six-month revenue declined approximately 20%.
- Second-quarter gross margin decreased to 80% from 83%, while six-month gross margin improved to 82% from 81%, reflecting product mix and lower service-contract costs.
- Research and development expense decreased 27% in the quarter and 28% year to date, primarily because of lower Genesis RMN project spending.
- Sales and marketing expense decreased 21% in the quarter and 17% year to date, primarily from lower travel and trade-show spending and more efficient resource allocation.
- General and administrative expense increased 41% in the quarter and 32% year to date, primarily because of higher non-cash director compensation tied to stock appreciation.
- Inventory increased to $4.6 million from $1.8 million at year-end, contributing to higher operating cash usage.
- On May 25, 2020, the company issued 3,658,537 common shares at $4.10 per share and received approximately $15.0 million in net proceeds. Shares outstanding were 73,258,040 as of July 31, 2020.
Guidance, Outlook, Risks and Unusual Items
- The filing provides no formal revenue or earnings guidance. Management stated that it could not reliably estimate procedure volumes for the third quarter and beyond.
- U.S. and European procedure volumes fell to approximately 40% of fourth-quarter 2019 levels by mid-April, then recovered to approximately pre-pandemic levels by the end of June. Asia Pacific procedure volumes also recovered to pre-pandemic levels by quarter-end.
- Management expected periodic disruptions to procedure volumes, service activities and system placements through the remainder of 2020 and beyond because of possible COVID-19 resurgences, elective-procedure deferrals, hospital resource constraints and delayed capital spending.
- COVID-19 risks include reduced demand for systems and disposables, delayed installations and sales cycles, customer financing pressure, travel restrictions, supply-chain interruptions and possible difficulty raising additional capital.
- Manufacturing and supply chains had been minimally interrupted as of the filing date, but management cautioned that future interruptions could materially affect operations and financial condition.
- Remaining performance obligations on system contracts were approximately $4.2 million at June 30, 2020, generally expected to be recognized within two years, although some may extend longer.
- Series A preferred stock carried cumulative dividends at 6% annually and had redemption and conversion features senior to common stock. At June 30, 2020, potentially dilutive securities included approximately 43.0 million shares issuable upon Series A conversion, 5.6 million upon Series B conversion, 2.5 million under options and stock appreciation rights, and 0.9 million restricted share units.
- Management reported no material pending legal proceedings, no subsequent events, and effective disclosure controls and procedures.
Important Facts for Investors to Verify
- Whether COVID-19 resurgences, elective-procedure deferrals or hospital capital constraints cause renewed declines in procedure volumes, system placements or disposable revenue.
- The amount of the $2.2 million PPP loan ultimately forgiven and any resulting repayment obligation.
- The pace of cash usage relative to the $44.0 million cash balance and continuing operating losses.
- Execution of the company’s system-placement strategy and conversion of the approximately $4.2 million system-contract backlog into revenue.
- The potential dilution and senior claims associated with Series A and Series B convertible preferred stock, warrants, options and restricted share units.
- Whether strategic technology and distribution relationships, regulatory clearances and supply-chain availability remain adequate to support commercialization.