Stereotaxis, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; filed March 10, 2022. The filing reports annual results, not a standalone fourth quarter. Stereotaxis develops and sells robotic magnetic navigation systems, interventional devices, imaging and information systems, and related services, primarily for electrophysiology and cardiac ablation procedures.
Financial performance and operating metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $35.0 million | $26.6 million | Up 32% |
| Systems revenue | $11.2 million | $3.6 million | Up 208% |
| Disposables, service and accessories | $22.9 million | $22.0 million | Up 4% |
| Gross profit | $23.2 million | $19.0 million | Up 22% |
| Gross margin | 66% | 71% | Down 5 percentage points |
| Operating loss | $12.9 million | $6.7 million | Loss increased |
| Net loss | $10.7 million | $6.6 million | Loss increased |
| Loss attributable to common stockholders | $12.1 million | $8.0 million | Loss increased |
| Basic and diluted loss per share | $0.16 loss | $0.11 loss | Loss increased |
| Cash flow from operations | $2.9 million used | $3.5 million used | Use decreased |
Recurring revenue included disposables, service and accessories, royalties, and software and maintenance revenue. Royalty revenue from co-developed Biosense Webster catheters represented 7% of 2021 revenue versus 8% in 2020. Sublease revenue was $1.0 million in both years and ended with the expiration of the related sublease on December 31, 2021.
Research and development expense increased 25% to $10.2 million, sales and marketing expense increased 7% to $11.9 million, and general and administrative expense increased 120% to $14.0 million. The increase in general and administrative expense was driven primarily by the CEO Performance Award and higher professional service fees.
Liquidity, capital resources and balance sheet
- Cash, cash equivalents and restricted cash totaled $40.1 million at December 31, 2021, including $1.4 million of restricted cash.
- Working capital was approximately $38.1 million, compared with $39.1 million at December 31, 2020.
- The Company reported no debt at December 31, 2021. The $2.2 million Paycheck Protection Program loan was fully forgiven in June 2021, producing a $2.2 million gain from debt extinguishment.
- Operating cash use was $2.9 million; investing cash use was $1.4 million, primarily for equipment and the build-out of the new facility; financing cash inflow was $0.5 million.
- Management stated that cash on hand was expected to fund ordinary-course obligations for at least 12 months from the financial statement date, while also noting continued operating losses and potential future capital needs.
- Accumulated deficit was $498.7 million. The Company had approximately $120.1 million of federal and $37.6 million of state net operating loss carryforwards, subject to limitations and full valuation allowances.
Material changes versus 2020
- Revenue growth was led by system sales, which increased $7.5 million and represented 32% of revenue versus 14% in 2020.
- Gross margin declined because of product mix, despite higher gross profit and positive system gross margin of $3.6 million compared with less than negative $0.1 million in 2020.
- Operating losses widened as operating expenses grew faster than gross profit, particularly due to the CEO Performance Award.
- Total stock-based compensation expense increased to $9.4 million from $3.2 million. The CEO Performance Award accounted for $6.1 million in 2021 and had approximately $51.3 million of unrecognized expense remaining through 2030, assuming continued service.
- Backlog increased to approximately $10.1 million at year-end from $6.9 million, with approximately 78% expected to be recognized as revenue during 2022. Backlog remains subject to customer, construction, installation and other contingencies.
- The Company relocated to a new 43,100-square-foot St. Louis facility. The ten-year lease began requiring payments in January 2022, with annual minimum rent ranging from approximately $0.8 million in 2022 to $1.0 million in 2031.
- COVID-19, hospital staffing shortages, supply-chain constraints, logistics delays and inflationary pressures reduced procedure volumes and delayed hospital construction and system placements. Fourth-quarter 2021 procedure volumes declined approximately 8% from the fourth quarter of 2020.
Guidance, outlook, risks and unusual items
- The Company did not provide quantitative revenue or earnings guidance. It expects 2022 operating expenses to exceed gross margin and anticipates continued operating losses and negative cash flows until revenue growth or expense reductions improve operating performance.
- Management expects pandemic-related disruptions to procedure volumes, service activity and capital-system placements to continue periodically in 2022, with recovery varying by geography.
- Key business risks include hospital adoption of expensive capital equipment, lengthy and variable sales and installation cycles, cancellation or delay of backlog, regulatory approvals, reimbursement, competition, reliance on strategic relationships and contract manufacturers, sole-source component risks, cybersecurity, product liability and intellectual property claims.
- Dependence on Biosense Webster is material: its distribution rights for co-developed catheters are nonexclusive through December 31, 2022, and termination or change-of-control provisions may require payments of up to $10 million, plus a potential additional $10 million under specified circumstances.
- The CEO Performance Award covers up to 13 million shares tied to market-capitalization milestones from $1.0 billion to $5.5 billion and continued service through 2030. It creates significant non-cash expense and potential dilution.
- Potential dilution also includes approximately 45.3 million shares issuable under Series A preferred stock, 5.6 million shares under Series B preferred stock, 2.8 million shares under options and stock appreciation rights, and 1.2 million unvested restricted stock units.
- The Company agreed to pay $675,000 in attorneys’ fees and expenses related to a shareholder litigation matter concerning disclosures about the CEO Performance Award. The action was dismissed with prejudice as to the plaintiff.
- Ernst & Young issued an unqualified audit opinion. The critical audit matters were systems revenue recognition and valuation of the CEO Performance Award.
Important facts for investors to verify
- Whether the $10.1 million backlog converts to revenue as expected and whether customer construction, installation or cancellation issues alter timing.
- Whether recurring procedure volumes recover from pandemic and staffing-related disruptions and support disposable, service and royalty revenue.
- Whether cash resources remain adequate as the Company continues to report operating losses and negative operating cash flow.
- The magnitude and timing of future stock-based compensation expense and the potential dilution from the CEO Performance Award and convertible preferred stock.
- The status of regulatory clearances for Genesis and new disposable devices, reimbursement conditions, and the continuation of strategic supply and technology relationships.
- The impact of the new facility lease, supply-chain constraints, inflation, sole-source suppliers and international trade risks on margins and liquidity.