Stereotaxis, Inc. Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and markets the Epoch Solution, including Niobe ES robotic magnetic navigation, Odyssey information management, Vdrive robotic navigation, and related disposable devices, services and accessories for hospital interventional laboratories. This report covers the three and six months ended June 30, 2012; financial statements are unaudited and presented after giving effect to the July 10, 2012 one-for-ten reverse stock split.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|---|---|
| Total revenue | $10.5 million | $11.6 million | $22.8 million | $21.8 million |
| Systems revenue | $3.9 million | $5.0 million | $9.0 million | $9.3 million |
| Disposables, service and accessories revenue | $6.6 million | $6.6 million | $13.8 million | $12.5 million |
| Gross margin | 69% | 70% | 69% | 70% |
| Operating loss | $(4.6) million | $(9.5) million | $(8.8) million | $(18.3) million |
| Net income (loss) | $2.8 million | $(9.7) million | $(3.0) million | $(19.2) million |
| Net earnings (loss) per share | $0.42 basic; $0.32 diluted | $(1.77) | $(0.49) | $(3.51) |
Second-quarter profitability was primarily attributable to $9.3 million of other income from fair-value changes in warrants and derivative instruments, rather than operating performance. Interest expense increased to $1.8 million in the quarter and $3.3 million for the six-month period.
Cash and cash equivalents were $12.1 million at June 30, 2012, compared with $14.0 million at December 31, 2011. Six-month operating cash use was $8.4 million, investing cash use was $0.1 million, and financing activities provided $6.7 million. Total debt was $29.1 million, including $13.9 million classified as current and $15.2 million classified as long term. Stockholders’ deficit was $13.5 million.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue declined approximately 9%, driven by a 23% decline in systems revenue. The company recognized two Niobe ES systems, $0.7 million of Niobe ES upgrades, and $1.1 million of Odyssey and Odyssey Cinema systems, compared with three Niobe systems and $1.6 million of Odyssey and Odyssey Cinema systems in the prior-year quarter.
- Six-month revenue increased approximately 4%, as a 10% increase in disposables, service and accessories revenue more than offset a modest decline in systems revenue.
- Operating expenses declined substantially: research and development fell 34% in the quarter, sales and marketing fell 36%, and general and administrative expenses fell 25%. Six-month operating expenses declined approximately 27% overall.
- Gross margin declined one percentage point in both the quarter and six-month period. Six-month disposables, service and accessories gross margin declined to 82% from 85%, reflecting product mix, lower royalties and Niobe ES upgrades provided in exchange for service contracts.
- Cash decreased by $1.8 million during the first six months of 2012, compared with an $12.0 million decrease in the prior-year period. The smaller decline reflected lower operating cash use and additional financing.
Financing, Outlook, Risks and Unusual Items
- In May 2012, the company received approximately $18.5 million of gross financing proceeds, including approximately $9.1 million of net proceeds from a PIPE stock and warrant transaction and approximately $8.5 million of subordinated convertible debentures. The PIPE proceeds were used in part to repay $7.0 million of the revolving credit facility.
- The convertible debentures bear 8% interest, mature in May 2014, and were convertible after shareholder approval at $3.361 per post-split share. Associated warrants and conversion features create substantial potential dilution and fair-value volatility.
- The revolving credit facility was extended to March 31, 2013 and reduced to $13.0 million. The company had $8.0 million outstanding and no remaining borrowing availability at June 30, 2012, although it was in compliance with bank covenants.
- The Cowen royalty-backed debt had a carrying amount of approximately $14.1 million, bears interest at 16%, and is repaid from Biosense Webster royalties. On July 30, 2012, the company gave notice to borrow an additional $2.5 million under the facility.
- Management expects operating expenses to decline 15% to 20% from first-quarter levels by the fourth quarter of 2012 and expects negative operating cash flow throughout 2012. Management stated that existing cash and borrowing facilities may not be sufficient to fund operations and capital requirements for the next 12 months, creating a potential need for additional financing.
- The company has incurred cumulative losses of approximately $378 million and expects losses to continue at least through 2012.
- The July 10, 2012 reverse stock split reduced outstanding shares from approximately 78 million to 7.8 million and increased authorized common shares from 100 million to 300 million. Nasdaq notified the company that it regained compliance with the minimum bid-price requirement, but it remained out of compliance with the $15 million publicly held market-value requirement, with a stated deadline of December 24, 2012.
- The company disclosed a securities class action and a related shareholder derivative action. It believes the claims are without merit, but stated that potential losses cannot currently be estimated.
- Foreign-currency exposure is material but unhedged. Management estimated that a 10% strengthening of the U.S. dollar would reduce six-month revenue by approximately $0.4 million and operating expenses by approximately $0.3 million.
Important Facts for Investors to Verify
- Whether operating expense reductions and Niobe ES upgrades improve recurring revenue, utilization and operating cash flow.
- The company’s ability to fund operations through at least the next 12 months given $12.1 million of cash, negative operating cash flow and no remaining revolving borrowing availability at June 30, 2012.
- Compliance with debt covenants, the March 2013 revolving facility maturity, the May 2014 convertible debenture maturity and the effect of the planned additional $2.5 million Cowen borrowing.
- The dilution and fair-value effects of approximately 2.5 million shares underlying the convertible debentures, associated warrants, PIPE warrants and other outstanding equity instruments, all stated on a post-split basis where applicable.
- Whether Nasdaq’s publicly held market-value listing deficiency was cured by the December 24, 2012 deadline.
- The status and potential financial impact of the securities class action and derivative litigation.
- Regulatory progress for the V-Loop catheter manipulator, which remained under FDA review at the reporting date.