Stereotaxis, Inc. — Q3 2019 Form 10-Q Summary
Business context and reporting period
Stereotaxis designs and markets robotic magnetic navigation, imaging, information-management, and related disposable products for hospital interventional labs. The filing covers the unaudited three and nine months ended September 30, 2019, compared with the corresponding 2018 periods. The installed base included 125 Niobe ES Systems at September 30, 2019.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenue | $8.2 million | $7.6 million | $22.0 million | $22.1 million |
| Gross profit | $6.4 million | $5.9 million | $17.6 million | $17.8 million |
| Gross margin | 77.7% | 78.3% | 80.0% | 80.6% |
| Operating loss | $(41,000) | $(114,000) | $(3.6) million | $(1.9) million |
| Net income (loss) | $44,000 | $(116,000) | $(3.5) million | $687,000 |
| Loss attributable to common stockholders | $(317,000) | $(478,000) | $(4.6) million | $(386,000) |
| EPS attributable to common stockholders | $(0.00) | $(0.01) | $(0.07) | $(0.01) |
- Q3 revenue increased 9%, driven by systems revenue of $1.7 million versus $715,000, including one Niobe ES System and $700,000 of Odyssey Systems revenue. Disposables, service, and accessories revenue declined 9% to $6.3 million, primarily because of lower service revenue. Sublease revenue contributed $247,000.
- Nine-month revenue was essentially flat year over year. Systems revenue increased 68% to $1.8 million, while disposables, service, and accessories revenue declined 7% to $19.5 million. Sublease revenue contributed $740,000.
- Q3 gross margin was approximately 78%; management reported 80% excluding the effect of lease accounting. Nine-month gross margin was 80%, or 83% excluding the lease-accounting impact.
- Nine-month operating expenses increased 8% to $21.3 million. Research and development increased 24% to $7.4 million, general and administrative increased 12% to $4.2 million, and sales and marketing decreased 2% to $9.7 million.
- Cash used in operating activities was $2.7 million for the nine months, compared with $1.8 million in 2018. Investing cash outflow was $16,000, while financing activities provided $23.6 million.
- Cash and cash equivalents were $31.7 million at September 30, 2019, compared with $10.8 million at December 31, 2018. Reported total liquidity was $34.1 million, including $2.4 million of borrowing capacity.
- The company had no outstanding borrowings under its secured $5.0 million revolving credit facility, which matures June 30, 2020. The facility’s availability was subject to collateral and was $2.4 million at quarter-end.
- Working capital was $26.9 million at September 30, 2019 versus approximately $7.8 million at December 31, 2018. Total assets were $43.3 million and stockholders’ equity was $22.8 million.
Material changes versus the prior comparable period
- Q3 profitability improved to net income of $44,000 from a net loss of $116,000, although common stockholders remained in a loss position after the preferred-stock dividend.
- Nine-month results deteriorated from net income of $687,000 in 2018 to a net loss of $3.5 million in 2019, principally reflecting higher research and development and administrative spending and the absence of approximately $2.6 million of other income recognized in 2018 from warrant valuation adjustments.
- The company completed an August 2019 private placement of 6,585,000 common shares and 5,610,121 Series B convertible preferred shares at $2.05 per share. Net proceeds were approximately $23.1 million and were intended for general corporate purposes.
- Common shares issued increased to 66.7 million at September 30, 2019 from 59.1 million at December 31, 2018. Series B preferred stock is convertible into common stock on a one-for-one basis, subject to specified limitations.
- Adoption of ASC 842 on January 1, 2019 added a $4.8 million operating lease right-of-use asset and $4.8 million of operating lease liabilities at September 30, 2019, and resulted in sublease revenue and corresponding sublease cost being reported.
Outlook, commentary, risks, and unusual items
- The filing does not provide formal revenue, earnings, or cash-flow guidance. Management states that interim results are not necessarily indicative of full-year or future performance.
- Management attributes the quarter’s improved operating result to higher system sales and lower research and development spending, partly offset by lower service revenue and higher sales commissions and professional fees.
- Approximately $1.0 million of transaction price related to remaining system-contract performance obligations was expected to be recognized in future periods as of September 30, 2019. Total deferred revenue was $5.8 million.
- Key risks include dependence on hospital capital purchases, regulatory approvals and clearances, commercialization of the Genesis System, competition, continued strategic relationships for compatible imaging and catheter technologies, service revenue variability, and the company’s history of operating losses and negative operating cash flow.
- Series A convertible preferred stock carries a 6% cumulative dividend and has senior liquidation and specified redemption rights. At quarter-end, securities potentially convertible into or exercisable for substantial additional common shares included Series A and Series B preferred stock, warrants, options, and restricted stock units.
- Management reported no material legal proceedings, no subsequent events, no defaults, and no material changes affecting internal control over financial reporting. Disclosure controls and procedures were evaluated as effective.
Important facts for investors to verify
- Whether system sales and Genesis commercialization can offset declining service revenue and support sustained revenue growth.
- The company’s path to positive operating income and operating cash flow, given the $3.6 million nine-month operating loss and $2.7 million operating cash burn.
- Future dilution and economic priority associated with Series A and Series B preferred stock, warrants, options, and restricted units.
- Remaining availability and renewal terms of the secured revolving credit facility before its June 30, 2020 maturity.
- The impact of ASC 842 lease accounting and the company’s lease payment obligations, including approximately $5.3 million of undiscounted future operating lease payments at September 30, 2019.
- Regulatory and commercial progress for the Genesis System and the continuation of key technology and distribution relationships.