Stereotaxis, Inc. — FY2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also presents unaudited fourth-quarter 2012 results. Stereotaxis develops robotic navigation and information-management systems for cardiac electrophysiology and interventional cardiology, including the Niobe ES, Odyssey and Vdrive platforms, related disposables, services and royalties.
Key financial metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Revenue | $46.6 million | $42.0 million | Up 11% |
| Systems revenue | $19.7 million | $15.6 million | Up 26% |
| Disposables, service and accessories | $26.9 million | $26.4 million | Up 2% |
| Gross profit | $31.8 million | $29.5 million | Up 8% |
| Gross margin | 68% | 70% | Down 2 percentage points |
| Operating loss | $10.6 million | $31.9 million | Improved 67% |
| Net loss | $9.2 million | $32.0 million | Improved 71% |
| Net loss per share | $1.33 | $5.84 | Improved |
| Cash flow used in operations | $12.1 million | $31.6 million | Improved 62% |
| Cash and cash equivalents at year-end | $7.8 million | $14.0 million | Down $6.2 million |
Reported net loss benefited materially from approximately $8.3 million of other income, principally non-cash mark-to-market gains on warrants and convertible-debt features. Interest expense increased to $6.9 million from $3.5 million.
Fourth-quarter 2012
| Metric | Q4 2012 | Q4 2011 |
|---|---|---|
| Revenue | $12.2 million | $11.6 million |
| Gross profit | $7.9 million | $8.3 million |
| Net loss | $4.3 million | $5.5 million |
| Basic and diluted loss per share | $0.55 | $1.00 |
Liquidity, debt and capital resources
- Working capital was negative $5.7 million at December 31, 2012, compared with negative $6.6 million at December 31, 2011.
- Total debt carrying value was $29.1 million, including $7.3 million on the revolving line, $4.0 million on the term note, $16.2 million owed to Healthcare Royalty Partners and $1.6 million of convertible debentures.
- The revolving facility was scheduled to mature June 30, 2013 after a March 2013 amendment. At year-end, only approximately $0.4 million of additional borrowing capacity was available based on collateral.
- The Healthcare Royalty Partners loan bears 16% annual interest, is secured by Biosense Webster royalty payments and certain company assets and intellectual property, and matures December 31, 2018.
- The May 2012 financing generated approximately $18.5 million of gross proceeds through convertible debentures, common stock and warrants; net stock and warrant proceeds were approximately $9.1 million. The company used $7.0 million to repay revolving debt.
- The company stated that existing cash and borrowing facilities would not fund operating expenses and capital requirements for the next 12 months and that additional financing was required.
Material changes versus 2011
- System revenue increased primarily because the company recognized revenue on nine Niobe systems, $3.3 million of Niobe ES upgrades and $6.5 million of Odyssey systems, compared with seven Niobe systems, $0.5 million of upgrades and $7.4 million of Odyssey systems in 2011.
- Recurring revenue represented 58% of total revenue, down from 63% in 2011 but above 42% in 2010. Niobe ES utilization increased 19% and overall utilization increased 7%, according to management.
- Operating expenses declined 31% to $42.4 million, reflecting headcount reductions and lower discretionary spending. Research and development decreased 35%, sales and marketing decreased 35%, and general and administrative expense decreased 21%.
- Gross margin declined because of a greater mix of systems revenue, lower royalty income and lower-margin disposable revenue. Systems gross margin improved to 50% from 45%, while disposables, service and accessories margin declined to 82% from 85%.
- Backlog fell to approximately $8.9 million at year-end from $20 million in 2011 and $43 million in 2010. Management expected approximately 87% of the 2012 backlog to be recognized in 2013, subject to installation, customer and other contingencies.
- The installed base reached 74 Niobe ES systems at year-end, and the company reported that approximately half of its North American and European installed base had been upgraded to the newer technology.
Outlook, risks and unusual items
- Management expected additional losses and negative operating cash flow in 2013, with sales and marketing, research and development and general and administrative expenses expected to remain broadly consistent with 2012.
- The independent auditors expressed substantial doubt about the company’s ability to continue as a going concern because of recurring losses and working-capital deficiency. The filing states that additional financing or other financing strategies were necessary and that failure to obtain funds could require reduced operations, delayed development or cessation of operations.
- Nasdaq notified the company in March 2013 that it did not meet continued-listing requirements relating to total assets and revenues, stockholders’ equity and market value of listed securities. The company intended to submit a compliance plan, but delisting remained possible. Delisting could trigger defaults under debt agreements.
- The company’s CEO announced his resignation effective April 12, 2013, and its CFO resigned effective February 22, 2013. The board chairman was expected to become interim CEO, with the controller serving as interim CFO.
- The company faces lengthy and variable hospital sales and installation cycles, reliance on hospital capital budgets and certificates of need, regulatory approval requirements, reimbursement uncertainty, competition from manual procedures and other technologies, and dependence on Siemens, Philips and Biosense Webster.
- Two shareholder-related lawsuits were pending: a federal securities class action and a shareholder derivative action. Management considered the claims without merit, but stated that outcomes and potential losses could not yet be estimated.
- The company implemented a one-for-ten reverse stock split in July 2012. The May 2012 financing and related warrants created substantial potential dilution; approximately 6.1 million shares were reserved for warrants at year-end, in addition to options and restricted awards.
- Beginning in 2013, the U.S. medical-device excise tax under the Affordable Care Act and Medicare payment reductions could affect demand, margins and cash flow.
Important facts for investors to verify
- Whether the company obtained sufficient financing to fund operations beyond the disclosed 12-month period and whether it remained in compliance with debt covenants.
- The status of the Nasdaq compliance plan, any listing transfer or delisting action, and related debt-default implications.
- Actual 2013 conversion of the $8.9 million backlog into revenue, including cancellations, installation delays and customer contingencies.
- Progress toward positive adjusted EBITDA, positive net income and operating cash-flow breakeven.
- The effect of the 16% royalty-backed debt, convertible debentures, warrants and potential equity dilution on future liquidity and ownership.
- Continuity of leadership following the CEO and CFO departures and the company’s ability to retain key technical, sales and clinical personnel.
- Regulatory clearance for V-Loop and V-Sono in the United States and the effect of new product approvals on system utilization and recurring disposable revenue.
- Developments and potential financial exposure in the securities class action and shareholder derivative litigation.