Stereotaxis, Inc. 2013 Q1 Form 10-Q Summary
Business context and reporting period
Stereotaxis designs and markets the Epoch Solution, including Niobe ES robotic magnetic navigation, Odyssey information management, Vdrive robotic navigation, and related disposable products and services. The unaudited report covers the three months ended March 31, 2013, compared with the three months ended March 31, 2012.
- The installed base included 81 Niobe ES systems at March 31, 2013.
- The company had cumulative net losses of approximately $390 million and expected additional losses throughout 2013.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $8.4 million | $12.3 million | Down approximately 32% |
| Systems revenue | $2.2 million | $5.2 million | Down approximately 57% |
| Disposables, service and accessories revenue | $6.2 million | $7.1 million | Down approximately 13% |
| Gross margin | 74% | 69% | Up 5 percentage points |
| Operating loss | $3.6 million | $4.2 million | Improved $0.6 million |
| Net loss | $4.9 million | $5.8 million | Improved $0.9 million |
| Net loss per share | $0.61 | $1.06 | Improved |
| Cash used in operating activities | $1.1 million | $4.2 million | Improved $3.1 million |
Gross margin improvement reflected a greater mix of higher-margin disposable, service and accessory revenue. Systems gross margin declined to 46% from 55%, while disposables, service and accessories margin increased to 84% from 80%.
Operating expenses declined to $9.8 million from $12.7 million: research and development decreased 46% to $1.5 million, sales and marketing decreased 19% to $4.9 million, and general and administrative expenses decreased 12% to $3.4 million. Interest expense increased to $1.9 million from $1.5 million, primarily because of noncash amortization of the subordinated convertible debenture discount.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $9.6 million at March 31, 2013, compared with $7.8 million at December 31, 2012.
- Working capital was negative approximately $6.0 million at March 31, 2013, compared with negative $5.7 million at year-end 2012.
- Total debt was $32.5 million, including $12.3 million of current maturities and $20.2 million of long-term debt.
- Debt included $8.8 million drawn on the revolving line, a $3.0 million term loan, $18.6 million of Healthcare Royalty Partners debt, and $2.1 million carrying value of subordinated convertible debentures.
- The revolving line maturity was extended to June 30, 2013. Borrowing capacity was $8.9 million, including amounts drawn, leaving approximately $0.1 million available at March 31, 2013. The company was in compliance with its bank covenants.
- Healthcare Royalty Partners debt bears interest at 16%, matures December 31, 2018, and is repaid from 100% of royalties payable under the Biosense Agreement until the loan is repaid.
Material changes versus the prior comparable period
- Revenue declined substantially because the company recognized one Niobe system in Q1 2013 versus two in Q1 2012, along with lower upgrade, Odyssey, Vdrive and disposable sales.
- Cost of revenue fell 42% to $2.2 million, reflecting lower sales volume and reduced system costs.
- Operating expenses fell 23% as a result of headcount reductions and lower consulting, contract research, materials and marketing costs.
- Operating cash burn improved materially, but the company continued to depend on financing activities. Financing provided $2.9 million in Q1 2013, including $2.5 million of additional Healthcare Royalty Partners debt.
- Fair-value liabilities for warrants and debt conversion features declined to $2.4 million from $3.0 million at December 31, 2012, generating $0.6 million of other income.
Outlook, risks and unusual items
- Management expected negative operating cash flow throughout 2013 and stated that existing cash, cash equivalents and borrowing facilities would not fund operating expenses and capital requirements for the next 12 months.
- The company stated that it would need additional financing or other strategies to continue operations. Potential sources included equity or debt financings, asset sales, strategic collaborations and distribution rights. Management warned that unavailable financing could require delayed product development, reduced commercial activities or cessation of operations.
- Management expected 2013 sales and marketing, research and development, and general and administrative expenses to remain consistent with 2012, while continuing product commercialization and research programs.
- V-Loop remained in human clinical trials for U.S. regulatory clearance, and V-Sono was under FDA review.
- The company received Nasdaq notices concerning noncompliance with continued-listing requirements related to assets and revenues, stockholders’ equity and market value of publicly held shares. It submitted a compliance plan and faced potential delisting, which could adversely affect liquidity, financing access and debt compliance.
- A securities class action and a related shareholder derivative action remained pending. Management considered the claims meritless, but stated that outcomes and potential losses could not yet be estimated.
- Approximately 28% of Q1 revenue and 18% of total expenses were denominated in foreign currencies. The company did not hedge foreign exchange exposure.
Important facts for investors to verify
- Whether the company secured financing sufficient to fund operations beyond the next 12 months.
- Whether the revolving credit facility and related lender guarantee were extended or refinanced beyond June 30, 2013.
- Whether Stereotaxis regained compliance with Nasdaq listing standards and avoided cross-defaults under its debt agreements.
- The pace of Niobe ES system placements, disposable utilization and recurring service revenue, given the sharp decline in system sales.
- The maturity and refinancing risk associated with the $12.3 million of current debt and the May 2014 convertible debentures.
- The status and potential exposure from the securities class action and shareholder derivative litigation.