Stereotaxis, Inc. 2016 Q2 Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and sells robotic navigation and information-management systems for hospital interventional labs, including the Niobe ES, Odyssey, and Vdrive systems, plus related disposables, services, accessories, and royalties. The filing covers the quarter and six months ended June 30, 2016. The installed base was 129 Niobe ES systems.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 |
|---|---|---|---|---|
| Revenue | $7.9 million | $9.7 million | $16.5 million | $19.2 million |
| Systems revenue | $0.9 million | $3.1 million | $3.0 million | $5.9 million |
| Disposables, service and accessories revenue | $6.9 million | $6.6 million | $13.5 million | $13.3 million |
| Gross margin | 86% | 70% | 80% | 71% |
| Operating loss | $(1.6) million | $(1.7) million | $(3.1) million | $(3.1) million |
| Net loss | $(2.3) million | $(1.5) million | $(4.6) million | $(4.7) million |
| Net loss per diluted share | $(0.11) | $(0.07) | $(0.21) | $(0.22) |
| Operating cash flow | Not separately provided | Not separately provided | $(4.6) million | $(4.2) million |
At June 30, 2016, cash and cash equivalents were $3.9 million, total assets were $16.3 million, and stockholders’ deficit was $21.7 million. Working capital was negative $4.1 million, compared with positive working capital of $1.0 million at December 31, 2015.
Total debt was $21.1 million, consisting of $3.0 million drawn under a Silicon Valley Bank revolving line and $18.1 million of Healthcare Royalty Partners debt. The royalty debt bears interest at 16% and matures December 31, 2018. The revolving facility had a $10.0 million maximum subject to collateral availability, but only $1.0 million of additional borrowing capacity was available at June 30, 2016. The $3.0 million revolving balance was repaid shortly after quarter-end.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 19%, principally because systems revenue fell approximately 70% as Niobe, Odyssey, and Vdrive system volumes decreased.
- Six-month revenue declined approximately 14%, while systems revenue declined approximately 49%.
- Recurring revenue from disposables, service and accessories increased 6% in the quarter and 2% year to date, partially offsetting lower system sales.
- Gross margin improved substantially because of the mix shift toward higher-margin disposables, service and accessories and lower service-contract costs.
- Operating expenses were broadly stable in the quarter and declined modestly year to date. Research and development was approximately $2.9 million year to date; sales and marketing was $8.1 million; and general and administrative expense was $5.4 million.
- Despite a similar year-to-date operating loss, second-quarter net loss increased because other income declined to $0.1 million from $1.0 million in the prior-year quarter. Other income primarily reflected non-cash warrant revaluation.
- Cash decreased $1.7 million during the first six months, compared with a $3.6 million decrease in the prior-year period, after $4.6 million of operating cash use and $2.9 million of financing cash inflows.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management expects additional losses in 2016 while continuing Niobe ES development, clinical adoption efforts, new system placements, research and development, and sales and marketing initiatives. No quantitative revenue or earnings guidance was provided.
- Management stated that existing cash, cash equivalents, and borrowing facilities may not be sufficient to fund operations and capital requirements through the next 12 months. Additional equity, asset-sale, collaboration, debt, or distribution-rights financing may be required, and financing may be unavailable or dilutive.
- If adequate financing is not obtained, the Company may need to delay product development or commercialization, reduce sales and support resources, license technologies to third parties, or cease operations.
- The revolving credit agreement requires a liquidity ratio above 1.50:1.00 and minimum tangible net worth thresholds. Substantially all Company assets secure the facility.
- Healthcare Royalty Partners receives 100% of royalties under the Biosense Webster agreement until its loan is repaid. Any royalty shortfall relative to interest obligations increases principal.
- On August 2, 2016, Nasdaq notified the Company that its common stock would be delisted because it failed to meet the $35 million market value of listed securities requirement. Trading was suspended and the shares began trading on OTCQX under “STXS” on August 4, 2016. The change may reduce liquidity and restrict access to capital markets, including the Controlled Equity Offering.
- Warrant liabilities were $0.6 million at June 30, 2016 and generated $0.2 million of other income through revaluation. Their valuation is sensitive to the Company’s stock price and volatility assumptions.
- Management reported that disclosure controls were effective and that no material change occurred in internal control over financial reporting. Pending legal matters were not expected to have a material effect.
Important Facts for Investors to Verify
- Whether recurring disposable, service, and accessory revenue can offset continued weakness in capital-system placements.
- Actual cash burn, borrowing capacity, covenant compliance, and the ability to fund operations beyond the next 12 months.
- Terms and availability of any new equity, debt, asset-sale, or strategic financing, including potential dilution.
- Repayment status and economic impact of the 16% Healthcare Royalty Partners debt and related royalty assignment.
- Effects of Nasdaq delisting and OTCQX trading on stock liquidity, customer and supplier confidence, and access to the Controlled Equity Offering.
- Changes in warrant valuations, deferred revenue, inventory levels, and accounts receivable collectability.