Stereotaxis, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems, including the Genesis RMN and Niobe systems, Odyssey workflow solutions, Vdrive systems, disposable interventional devices, service plans and related products for hospital interventional laboratories. The filing covers the fiscal year ended December 31, 2019, with comparative information for 2018; it does not provide separate fourth-quarter results.
- Installed base: 123 Niobe ES Systems at December 31, 2019.
- Employees: 118 at December 31, 2019.
- Backlog: approximately $1.1 million at year-end 2019 versus $2.8 million at year-end 2018; approximately 51% of the 2019 backlog was expected to be recognized in 2020, subject to customer and project contingencies.
- Biosense Webster royalties represented approximately 10% of revenue in both 2019 and 2018.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $28.9 million | $29.3 million | Down approximately 2% |
| Systems revenue | $2.1 million | $1.6 million | Up approximately 31% |
| Disposables, service and accessories | $25.9 million | $27.8 million | Down approximately 7% |
| Sublease revenue | $1.0 million | — | New in 2019 |
| Gross margin | $22.8 million; 79% | $23.6 million; 81% | Margin down 2 percentage points |
| Operating loss | $(4.8) million | $(2.5) million | Loss increased |
| Net income (loss) | $(4.6) million | $0.1 million | Declined |
| Loss attributable to common stockholders | $(6.0) million | $(1.3) million | Loss increased |
| Basic and diluted loss per share | $(0.10) | $(0.03) | Declined |
| Cash flow from operations | $(4.6) million | $(2.5) million | Use increased |
- Research and development expense increased 10% to $9.0 million, primarily due to higher project-based spending.
- Sales and marketing expense decreased 2% to $12.7 million.
- General and administrative expense increased 19% to $5.8 million, driven primarily by higher administrative and professional-service costs.
- Cash and cash equivalents were $30.2 million at December 31, 2019, compared with $10.8 million at December 31, 2018. Total liquidity was approximately $33.8 million, including $3.6 million of borrowing capacity.
- Working capital increased to approximately $26.7 million from $7.8 million.
- The company had no outstanding borrowings under its revolving credit facility. The facility had a $5.0 million maximum commitment, subject to collateral, and matured June 30, 2020. The company reported compliance with its financial covenants.
- Accumulated deficit was $481.3 million at year-end 2019. Federal net operating loss carryforwards were approximately $104.8 million, but deferred tax assets were fully reserved.
Material changes versus 2018
- Revenue declined modestly despite higher systems revenue, as disposables, service and accessories revenue decreased, primarily due to lower service revenue.
- Gross margin declined from 81% to 79%, mainly because of product mix. Systems gross margin improved to 32% from negative 13%, while disposables, service and accessories margin remained approximately 86%.
- Operating loss widened because gross profit declined while research and development and general and administrative expenses increased.
- The company recorded $1.0 million of sublease revenue and an equivalent sublease cost following adoption of lease accounting guidance.
- Other income fell to zero from $2.6 million in 2018 because the warrant-related fair-value adjustments were no longer applicable.
- In August 2019, the company completed a private placement of common stock and Series B Convertible Preferred Stock, generating approximately $23.1 million of net proceeds. The transaction materially increased liquidity and stockholders’ equity but added potential dilution.
- Operating lease right-of-use assets and liabilities were recognized on the balance sheet under ASC 842.
Guidance, outlook, commentary and risks
Management did not provide quantitative revenue or earnings guidance in the filing. The company stated that 2020 expenses were expected to exceed 2020 gross margin and that operating losses and negative cash flows were expected to continue until revenue growth or expense reductions produced sufficient support for ongoing operations.
- Liquidity depends substantially on clinical adoption within the installed base, new capital-system placements, expense control and the ability to raise additional debt or equity capital.
- Management warned that failure to improve operating performance or obtain additional financing could require a substantial revision of the business plan or cessation of operations.
- System sales have lengthy and variable sales and installation cycles and are affected by hospital capital budgets, construction projects, certificate-of-need approvals and possible order cancellations.
- Backlog may not convert to revenue because orders can be delayed, modified or canceled.
- The business relies on strategic relationships, particularly with Biosense Webster and imaging and mapping technology providers, to maintain product compatibility and disposable-device availability.
- Medical-device regulatory approvals, reimbursement, product liability, warranty claims, quality-system compliance, cybersecurity, intellectual-property protection and competition remain significant risks.
- The company relies on contract manufacturers and certain sole- or single-source suppliers, including suppliers of magnets and disposable-device components.
- The filing identifies a pandemic, including the then-ongoing coronavirus outbreak, as a potential risk to supply chains, customer procedures, travel, distribution and demand.
- Series A and Series B convertible preferred stock and other equity awards could substantially dilute common stockholders. Series A preferred stock carries a cumulative 6% dividend and senior liquidation rights.
Ernst & Young issued an unqualified audit opinion on the financial statements and an unqualified opinion on internal control over financial reporting. Management concluded that disclosure controls and internal controls were effective as of December 31, 2019.
Most important facts for an investor to verify
- Whether the company extended, refinanced or repaid the revolving credit facility after its June 30, 2020 maturity date.
- Actual 2020 revenue conversion from the $1.1 million year-end 2019 backlog and subsequent backlog trends.
- Cash burn, operating losses and the timing or terms of any additional financing.
- Adoption of Genesis and utilization growth across the Niobe installed base.
- Continuation of the Biosense Webster and other strategic relationships, including disposable-device supply and royalty economics.
- Potential dilution from approximately 42.5 million Series A and 5.6 million Series B conversion shares, in addition to options, warrants and other awards.
- Any effects of the coronavirus pandemic, regulatory developments, reimbursement changes or supply-chain disruptions on operations and customer procedures.