Stereotaxis, Inc. Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs, manufactures, and markets the Epoch Solution, including Niobe ES remote magnetic navigation, Odyssey information management, Vdrive robotic navigation, and related disposable devices and services for interventional cardiology. The company reported the quarter and six months ended June 30, 2018. Its installed base was 127 Niobe ES systems.
Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $7.6 million | $14.5 million |
| Gross profit | $6.2 million | $11.9 million |
| Gross margin | 82% | 82% |
| Operating loss | $(0.6) million | $(1.8) million |
| Net income (loss) | $(0.6) million | $0.8 million |
| Net income (loss) attributable to common stockholders | $(1.0) million | $49 thousand |
| Basic and diluted EPS | $(0.02) | $0.00 |
- Quarterly revenue comprised $0.3 million from systems and $7.2 million from disposables, service, and accessories.
- Six-month revenue comprised $0.3 million from systems and $14.2 million from disposables, service, and accessories.
- Six-month operating expenses were $13.6 million, including $4.0 million of research and development, $7.1 million of sales and marketing, and $2.5 million of general and administrative expense.
- Cash and cash equivalents were $12.0 million at June 30, 2018, compared with $3.7 million at December 31, 2017. Working capital was $8.0 million versus a $20.3 million deficit at year-end 2017.
- Operating cash flow was $(1.5) million for the first six months, compared with $(3.4) million in the prior-year period. Investing cash flow was $(57 thousand).
- Financing cash flow was $9.9 million, primarily from warrant exercises. Total liquidity was $15.1 million, including cash and cash equivalents.
- The company had no outstanding borrowings under its secured revolving credit facility. The facility had $5.0 million of maximum availability and approximately $3.1 million of borrowing capacity based on collateral at June 30, 2018.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 11% from $8.5 million to $7.6 million; six-month revenue declined 6% from $15.4 million to $14.5 million.
- System revenue fell approximately 83% in the quarter and 84% year to date, primarily because of lower system sales volume. System gross margin was negative $0.1 million for the quarter and negative $0.3 million year to date.
- Disposables, service, and accessories revenue increased 9% for the quarter and 6% year to date, primarily from higher time-and-material service revenue.
- Gross margin improved from 74% to 82% for the quarter and from 78% to 82% year to date, reflecting product mix and lower service-contract costs.
- Quarterly research and development expense increased 16%, while sales and marketing expense decreased 5% and general and administrative expense was approximately unchanged.
- Year-to-date research and development expense increased 19%; sales and marketing expense decreased 4%; and general and administrative expense decreased 29%, primarily because of lower executive headcount, severance, and professional fees.
- The company modified its warrants in February 2018, reducing the exercise price temporarily from $0.70 to $0.28 per share and eliminating certain cash redemption rights. Holders exercised 35,791,927 warrants for approximately $10.0 million, increasing common shares outstanding and stockholders’ equity.
- Warrants previously recorded as liabilities were reclassified to equity. The resulting $2.6 million year-to-date warrant revaluation benefit was non-cash and contributed materially to reported net income.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method, recording a $0.3 million reduction to accumulated deficit and capitalizing certain multi-year contract commissions.
Guidance, Outlook, Risks, and Unusual Items
- Management believes cash on hand will fund ordinary-course obligations for at least 12 months after issuance of the financial statements.
- Management expects 2018 expenses to exceed 2018 gross margin and expects continued operating losses and negative cash flows until revenue growth or expense reductions support operations.
- Future liquidity depends substantially on clinical adoption within the installed Niobe base and new capital-system placements. Management may need additional equity, debt, asset-sale, or strategic financing, which may be unavailable, dilutive, or unfavorable; insufficient funding could require reduced commercialization activity or cessation of operations.
- Maintenance of integrations with compatible digital fluoroscopy systems is important to commercialization. The company states that currently compatible systems may not remain commercially available and that equivalent alternatives may not be available on acceptable terms or at all.
- Series A convertible preferred stock carries a 6% cumulative dividend, ranks senior to common stock, and could be converted into approximately 40.6 million common shares including accumulated dividends. Outstanding warrants and equity awards also create potential dilution.
- Remaining August 2013 warrants expire in November 2018. Their fair value depends significantly on unobservable volatility assumptions.
- Management reported no material pending legal matters, no subsequent events, and effective disclosure controls as of June 30, 2018.
Important Facts for Investors to Verify
- Whether new Niobe, Odyssey, and Vdrive placements recover the sharp decline in system revenue.
- Whether recurring disposable, service, royalty, and license revenue remains sufficient to offset capital-sales volatility.
- The pace of operating cash burn and whether the $12.0 million cash balance and available credit remain adequate as losses continue.
- The potential dilution and senior claims associated with convertible preferred stock, warrants, options, and restricted stock units.
- The sustainability of the 82% gross margin, particularly given negative system gross margins in the reported periods.
- The availability of compatible fluoroscopy integrations and the progress of successor or alternative systems.