ClearPoint Neuro, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. ClearPoint Neuro develops and commercializes technology for minimally invasive brain procedures guided by intra-procedural MRI. Unless otherwise noted, amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $4.57 | $3.52 | $12.02 | $9.11 |
| Gross profit | $3.09 | $2.62 | $8.00 | $6.48 |
| Gross margin | 68% | 74% | 67% | 71% |
| Operating loss | $(3.80) | $(1.27) | $(9.39) | $(3.96) |
| Net loss | $(3.98) | $(1.48) | $(10.26) | $(5.20) |
| Net loss per share | $(0.18) | $(0.09) | $(0.50) | $(0.33) |
- Revenue mix: Q3 product revenue was $3.34 million, up 41%; service and other revenue was $1.24 million, up 8%. For the first nine months, product revenue was $8.86 million, up 43%, and service and other revenue was $3.15 million, up 8%.
- Operating costs: Q3 research and development rose 130% to $2.63 million, sales and marketing increased 22% to $1.83 million, and general and administrative expenses rose 95% to $2.44 million. The company attributed increases principally to staffing, product/software development, commercialization activity, and other operating costs.
- Cash flow: Operating activities used $9.15 million in the first nine months, versus $5.41 million in 2020. Investing activities used $0.13 million; financing activities provided $46.83 million, primarily from the February public offering. Cash increased $37.55 million to $57.65 million.
- Liquidity and debt: Current assets were $65.00 million and current liabilities were $4.59 million. The company had $17.61 million of convertible notes payable, net of financing costs, at September 30; the notes are secured by company assets. Management said cash on hand was sufficient to support operations and obligations for at least the next 12 months.
Changes versus the prior comparable period
- Revenue increased 30% in Q3 and 32% year to date. Management cited recovery in elective procedures and customer research and clinical-trial activity following COVID-19 disruptions. ClearPoint system case volume rose 14% in Q3 and 36% year to date; active surgery centers remained approximately 60.
- Biologics and drug delivery revenue increased 39% in both Q3 and the nine-month comparison. The company reported approximately 40 partners, compared with approximately 25 a year earlier.
- Gross margin declined to 68% in Q3 and 67% year to date. Management cited excess and obsolete inventory reserves, higher allocated overhead, and—in Q3—a lower contribution from higher-margin service revenue.
- Net loss widened as operating expenses grew faster than revenue. Year-to-date interest expense decreased to $0.81 million from $1.24 million, mainly reflecting repayment of prior notes and conversion of one note, partly offset by interest on the Second Closing Note.
- A February 2021 public offering raised approximately $46.8 million net, issuing 2.13 million shares. Shares outstanding were 22.86 million at September 30 and 23.64 million as of November 9, 2021.
Outlook, risks, and unusual items
- The filing gives no numerical revenue or earnings guidance. Management expects continued investment in research and development and commercialization; it said meaningful therapy-product revenue was not expected in 2021 and targeted a limited market release in 2022.
- COVID-19 and the Delta variant may again disrupt elective procedures, customer trials, and revenue. Management also identified supply-chain disruption, labor shortages, and inflation as potential adverse factors. Hospital capital-equipment purchasing remained below pre-pandemic levels.
- Revenue and operating results remain uncertain given the company’s continuing losses, early-stage growth initiatives, dependence on customer adoption and clinical-trial activity, and reliance on certain suppliers. The filing notes that some manufacturing components have few alternative sources.
- One related-party customer accounted for 18% of Q3 sales and 19% of nine-month sales. Approximately $52 million of bank balances exceeded FDIC-insured limits.
- In May 2021, a noteholder converted $7.5 million principal and accrued interest into 1,256,143 shares. After quarter-end, on November 3, the holder of the Second Closing Note converted its $7.8 million principal balance and related interest into 773,446 shares.
- The company early adopted convertible-debt accounting guidance on January 1, 2021, reversing a prior $3.1 million note discount and corresponding additional-paid-in-capital balance. The filing also reclassified certain revenue and expense line items and conformed prior-period presentation.
- Management reported effective disclosure controls as of September 30, 2021. No material changes to risk factors, material legal proceedings, or off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Whether procedure volumes and customer-sponsored clinical trials continue to recover, and how COVID-19 affects elective surgeries and hospital activity.
- Whether revenue growth can outpace rising operating expenses and restore gross margins.
- Cash burn, remaining liquidity runway, and the impact of the November note conversion on debt, interest expense, and share dilution.
- Revenue dependence on the related-party customer and the timing and commercial prospects of biologics, drug-delivery, and therapy programs.
- Supply availability, inventory reserves, and the company’s exposure to uninsured bank deposits.