Stereotaxis, Inc. — Q1 2019 Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and markets robotic magnetic navigation systems and related products for catheter-based cardiac procedures, including the Genesis and Niobe systems, Odyssey Solution, Vdrive systems, disposable devices, service plans and software. The filing covers the three months ended March 31, 2019. The installed base included 126 Niobe ES systems.
Financial Performance and Position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $7.0 million | $7.0 million |
| Gross margin | $5.6 million; 80% | $5.7 million; 82% |
| Operating loss | $2.1 million | $1.1 million |
| Net income (loss) | $(2.1) million | $1.4 million |
| Loss/income attributable to common stockholders | $(2.5) million | $0.5 million |
| Basic and diluted EPS | $(0.04) | $0.02 basic; $0.01 diluted |
| Cash flow from operations | $(1.8) million | $(2.0) million |
| Capital expenditures | $9,833 | $9,990 |
| Cash and cash equivalents, period-end | $9.0 million | $11.6 million |
Revenue consisted primarily of disposables, service and accessories of $6.7 million. Systems revenue was $58,000, and sublease revenue was $241,000 following adoption of new lease accounting guidance. Research and development expense increased to $3.0 million, sales and marketing expense declined to $3.3 million, and general and administrative expense increased to $1.5 million.
At March 31, 2019, total assets were $22.4 million, current assets were $16.4 million and total liabilities were $17.1 million. The Company had $5.6 million of convertible preferred stock reported in the mezzanine section and stockholders’ equity of $(0.6) million. Operating lease right-of-use assets were $5.6 million and operating lease liabilities totaled $5.6 million.
The Company had no outstanding balance on its Silicon Valley Bank revolving credit facility at March 31, 2019. Borrowing capacity was $3.3 million, and reported total liquidity was $12.3 million, including cash. The facility matured on April 25, 2019.
Material Changes Versus the Prior Comparable Period
- Total revenue was essentially flat year over year. Disposables, service and accessories revenue decreased approximately 4%, primarily because of lower service revenue, while $241,000 of sublease income was newly recorded.
- Gross margin declined from 82% to 80%, primarily due to the new sublease cost presentation. Excluding the lease-related impact, management reported a 2019 gross margin of approximately 83%.
- Research and development expense increased approximately 51% because of spending on new projects.
- Sales and marketing expense decreased approximately 9% due to lower headcount and outsourced costs.
- General and administrative expense increased approximately 18%, primarily due to higher consulting costs.
- The Company shifted from net income in Q1 2018 to a net loss in Q1 2019. Q1 2018 included $2.6 million of other income related to warrant valuation; no comparable other income was recorded in Q1 2019.
- Cash declined $1.8 million during Q1 2019, compared with a $7.9 million increase in Q1 2018. Q1 2018 financing cash flow included approximately $10.0 million from warrant exercises.
- Adoption of ASC 842 on January 1, 2019 added operating lease assets and liabilities to the balance sheet and caused sublease income and related cost to be reported in revenue and cost of revenue.
Guidance, Outlook, Risks and Unusual Items
Management expects 2019 expenses to exceed 2019 gross margin and expects continued operating losses and negative cash flows until revenue growth or expense reductions support operations. Management believes cash on hand will fund ordinary-course obligations for at least 12 months from issuance of the financial statements, but may pursue debt or equity financing or other capital transactions.
Liquidity depends substantially on clinical adoption within the installed Niobe base and new capital-system placements. The Company cautions that additional financing may be unavailable, costly or dilutive; inadequate funding could delay product development and commercialization, reduce sales and support resources, or require the Company to cease operations.
Additional risks include regulatory and commercialization requirements, dependence on strategic technology relationships, uncertainty regarding the continued availability of compatible imaging systems, reliance on recurring revenue and clinical adoption, accumulated losses, and the Company’s common stock no longer being listed on a national securities exchange.
Series A convertible preferred stock carries cumulative dividends at 6% annually, ranks senior to common stock and may be redeemable upon specified change-of-control or similar events. As of March 31, 2019, potential dilution included approximately 2.1 million shares from options and stock appreciation rights, 1.1 million shares from warrants, 42.3 million shares issuable upon preferred-stock conversion and accumulated dividends, and 0.7 million unvested restricted stock units.
Management reported no material litigation exposure, no subsequent events and effective disclosure controls as of March 31, 2019.
Important Facts for Investors to Verify
- Verify the status and renewal or replacement of the Silicon Valley Bank credit facility after its April 25, 2019 maturity.
- Assess cash runway in light of the $1.8 million quarterly operating cash burn and management’s expectation of continued losses.
- Review the sensitivity of recurring revenue to service activity, clinical adoption and the 126-system installed base.
- Evaluate the potential dilution and senior claims associated with preferred stock, warrants, options and restricted stock units.
- Confirm the impact of ASC 842 on reported revenue, cost of revenue, lease liabilities and working capital.
- Monitor the availability of compatible imaging technology and the Company’s strategic supplier and technology relationships.