Stereotaxis, Inc. — Form 10-Q Summary
Business context and reporting period
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems, instruments and information systems for minimally invasive endovascular procedures, with a primary focus on cardiac electrophysiology. Key products include the Genesis RMN System, Odyssey Solution and related disposable devices and accessories.
This unaudited quarterly report covers the three and nine months ended September 30, 2022, compared primarily with the corresponding 2021 periods. The company filed the report on November 14, 2022.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $7.7 million | $9.1 million | $20.8 million | $26.8 million |
| Systems revenue | $2.4 million | $3.5 million | $4.6 million | $8.8 million |
| Disposables, service and accessories | $5.2 million | $5.3 million | $16.2 million | $17.2 million |
| Gross margin | 60% | 52% | 68% | 65% |
| Operating loss | $(5.1) million | $(4.6) million | $(14.3) million | $(9.5) million |
| Net loss | $(4.9) million | $(4.6) million | $(14.1) million | $(7.4) million |
| Net loss attributable to common stockholders | $(5.3) million | $(5.0) million | $(15.1) million | $(8.4) million |
| Basic and diluted loss per share | $(0.07) | $(0.07) | $(0.20) | $(0.11) |
For the nine months, operating cash flow was $(5.9) million versus $(1.7) million in 2021. Investing cash flow was $(2.0) million, primarily for equipment and construction related to the new facility, compared with $(0.2) million in 2021. Financing cash flow was $0.2 million, primarily from stock issuances.
Cash, cash equivalents and restricted cash totaled $32.4 million at September 30, 2022, down from $42.5 million at September 30, 2021 and $40.1 million at December 31, 2021. Cash and cash equivalents alone were $30.9 million. Working capital was $30.5 million, compared with $38.1 million at December 31, 2021.
The company reported no debt at September 30, 2022. The approximately $2.2 million Paycheck Protection Program loan was fully forgiven in June 2021, producing a 2021 debt-extinguishment gain. Operating lease liabilities totaled approximately $5.9 million, including the company’s ten-year St. Louis facility lease.
Material changes versus the prior comparable period
- Third-quarter revenue declined 16%, primarily because systems revenue fell 32% to $2.4 million and 2021 included $0.2 million of sublease revenue that ended December 31, 2021.
- Nine-month revenue declined 22%. Systems revenue decreased because of lower system sales volumes and product mix; recurring product, service and accessory revenue decreased 6% because of service-contract timing, lower procedure volumes and the stronger U.S. dollar.
- Gross margin improved to 60% in the third quarter and 68% for the nine months, primarily because of product mix, despite lower disposable, service and accessory margins.
- Operating expenses increased 3% in the third quarter and 6% for the nine months. Nine-month increases included higher research and development, sales and marketing, and general and administrative costs.
- Nine-month net loss nearly doubled from $7.4 million to $14.1 million, and loss attributable to common stockholders increased from $8.4 million to $15.1 million. The 2021 period benefited from the $2.2 million debt-forgiveness gain.
- Inventory increased to $8.2 million from $4.4 million at December 31, 2021, reflecting actions to increase inventory levels amid supply-chain uncertainty.
- Deferred revenue increased to $9.5 million from $8.5 million at December 31, 2021. Remaining performance obligations on system contracts were approximately $13.9 million at September 30, 2022.
Outlook, risks and unusual items
The filing does not provide formal revenue, earnings or cash-flow guidance. Management expects continued periodic disruption to procedure volumes, service activities and system placements during 2022 and expects capital system orders to experience delays.
- COVID-19 resurgences, hospital staffing shortages and supply-chain disruptions may reduce procedure volumes, delay hospital construction projects and extend sales and installation cycles.
- Parts shortages, logistics delays and inflation may increase manufacturing costs or impair the company’s ability to manufacture and ship products. Management stated that operations and supply chains had been manageably impacted as of the filing date.
- Hospitals’ capital constraints, recession risk and disruptions in capital markets could delay system purchases, reduce disposable demand and limit the company’s ability to raise additional capital on acceptable terms.
- Strategic relationships supporting imaging, catheter-location sensing and compatible interventional devices are important to commercialization; their continuation or replacement on competitive terms is not assured.
- The company recorded $7.9 million of share-based compensation during the first nine months, including $5.3 million related to the CEO Performance Award. None of that award’s market-capitalization milestones had been achieved as of September 30, 2022.
- The company leases approximately 43,100 square feet in St. Louis under a ten-year lease. Future minimum operating lease payments totaled $8.8 million, with a present value of $5.9 million.
- Management reported no material pending legal proceedings, no material changes in internal controls, and no subsequent events. The company expects to adopt the current expected credit loss standard in the first quarter of 2023 and does not expect a significant impact.
Important facts for investors to verify
- Whether system placements and system revenue recover after pandemic-related delays and hospital capital-spending constraints.
- Whether recurring revenue and procedure volumes offset continued weakness in capital-system sales.
- The pace of cash burn relative to the $32.4 million of cash, cash equivalents and restricted cash at September 30, 2022.
- Whether inventory growth, supply-chain costs and service-contract costs pressure future margins.
- The impact of ongoing stock-based compensation and potential dilution from 3.2 million options or stock appreciation rights, 46.8 million Series A conversion shares, 5.6 million Series B conversion shares and 1.2 million unvested restricted stock units.
- The timing and collectability of approximately $13.9 million in remaining system-contract performance obligations and the composition of deferred revenue.