Stereotaxis, Inc. — Q1 2023 Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems, interventional devices and information systems for hospitals, with a primary focus on cardiac electrophysiology and ablation procedures. The company also seeks to expand into coronary, neurovascular and peripheral interventions.
This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. The company’s common stock trades on the NYSE American under the symbol STXS.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $6.548 million | $7.037 million | Down 7% |
| Systems revenue | $1.821 million | $1.634 million | Up 11% |
| Disposables, service and accessories revenue | $4.727 million | $5.403 million | Down 13% |
| Gross profit | $3.876 million | $4.924 million | Down 21% |
| Gross margin | 59% | 70% | Down 11 percentage points |
| Operating loss | $5.619 million | $4.089 million | Loss increased 37% |
| Net loss | $5.347 million | $4.086 million | Loss increased 31% |
| Net loss attributable to common stockholders | $5.678 million | $4.417 million | Loss increased 29% |
| Basic and diluted loss per share | $0.07 loss | $0.06 loss | Loss per share increased |
| Cash used in operating activities | $2.802 million | $2.193 million | Use increased 28% |
Calculated margins were approximately 59% gross, (86)% operating and (82)% net in Q1 2023. Operating expenses totaled $9.495 million, including $2.746 million of research and development, $3.148 million of sales and marketing, and $3.601 million of general and administrative expense.
Interest income increased to $0.272 million from $0.003 million, primarily because of higher interest rates and invested balances. Stock-based compensation was $2.655 million, including $1.8 million related to the CEO performance award.
Financial Position, Cash Flow and Liquidity
- Cash and cash equivalents were $5.623 million at March 31, 2023, compared with $8.586 million at December 31, 2022.
- Restricted cash totaled $1.137 million, and short-term investments totaled $20.041 million. Cash, cash equivalents and restricted cash totaled $6.760 million.
- Working capital was $26.6 million, down from $29.0 million at December 31, 2022.
- Total assets were $50.711 million and total liabilities were $21.418 million.
- The company reported no debt. Operating lease liabilities totaled $5.772 million on a present-value basis, and future minimum operating lease payments totaled $8.397 million.
- Operating cash use was $2.802 million; investing cash use was $0.349 million, primarily for property and equipment; financing activities provided $0.056 million.
- Deferred revenue totaled $9.256 million, including $7.545 million current and $1.711 million long term. Remaining transaction price related to system-contract performance obligations was approximately $15.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined 7%, despite an 11% increase in systems revenue, because disposables, service and accessories revenue declined 13%.
- Management attributed the recurring-revenue decline primarily to lower royalties from Biosense Webster on co-developed catheter sales.
- Gross margin declined to 59% from 70%. System margin was affected by product mix, while disposables, service and accessories margin declined to 79% from 85% because of higher service-contract costs.
- Research and development expense increased 12%, primarily due to project timing and regulatory expenses. Sales and marketing expense increased 7%, driven mainly by higher travel and stock-based compensation.
- Operating and net losses widened, while operating cash use increased.
- Inventory increased to $8.510 million from $7.876 million, reflecting actions to increase inventory amid supply-chain constraints. The excess and obsolescence reserve was $1.945 million.
- The company adopted the current expected credit loss standard effective January 1, 2023; management reported no material financial statement impact.
- In April 2023, all 5,610,121 outstanding Series B convertible preferred shares were converted into common stock on a one-for-one basis.
Outlook, Risks and Unusual Items
The filing does not provide quantitative revenue, earnings or cash-flow guidance. Management describes the business as subject to long and variable system sales and installation cycles and does not state that the first-quarter results are indicative of full-year performance.
- COVID-19 resurgences, hospital staffing shortages and supply constraints continued to pressure procedure volumes, system installations and disposable demand. China-related procedure volumes were negatively affected early in the quarter but recovered as infections and hospitalizations declined.
- Supply-chain shortages, inflation and logistics delays could increase manufacturing costs, delay shipments and reduce margins. Hospitals’ capital constraints may delay or cancel system projects.
- Customer shortages of catheters and other supplies may reduce procedures and disposable revenue.
- The company relies on strategic technology and device relationships; loss of these relationships or inability to secure alternatives could impair commercialization.
- The company maintained accounts at Silicon Valley Bank representing less than 6% of total cash, cash equivalents and marketable securities. Management does not believe the company incurred a loss from SVB’s receivership, but deposits may exceed FDIC insurance limits at financial institutions.
- Series A preferred stock remains senior to common stock, bears a 6% cumulative dividend that is generally not paid in cash, and had a carrying amount of $5.583 million. The company reported no declared cash dividends.
- The 2021 CEO performance award could cover up to 13 million shares. No performance milestones had been achieved as of March 31, 2023, but $1.8 million of related expense was recognized in the quarter and approximately $42.4 million remained unrecognized.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material legal proceedings were reported.
Most Important Facts for Investors to Verify
- Whether recurring revenue and royalties recover, and the extent to which the Biosense Webster royalty decline continues.
- Whether gross margin improves from the 59% level as product mix and service-contract costs normalize.
- The company’s cash-burn rate and liquidity runway, including the use of its $20.0 million short-term investment portfolio.
- Timing of hospital system installations, construction projects and recognition of the approximately $15.1 million of remaining system-contract obligations.
- Impact of supply-chain, inflationary and hospital staffing conditions on procedure volumes, manufacturing costs and customer demand.
- The effect of the April 2023 Series B conversion on common-share dilution and the company’s capital structure.
- Potential future dilution from Series A preferred stock, options, stock appreciation rights, restricted stock units and the CEO performance award.