Stereotaxis, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and markets the Epoch Solution, including Niobe ES magnetic navigation, Odyssey information management, Vdrive robotic navigation systems, and related disposable devices, service contracts, licenses, and royalties. The report covers the three months ended March 31, 2016. The installed base was 126 Niobe ES systems.
Financial Performance and Position
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $8.65 million | $9.53 million | Down 9% |
| Systems revenue | $2.08 million | $2.83 million | Down 27% |
| Disposables, service and accessories | $6.57 million | $6.70 million | Down 2% |
| Gross profit | $6.47 million | $6.90 million | Down 6% |
| Gross margin | 75% | 72% | Improved |
| Operating loss | $1.49 million | $1.41 million | Loss increased 5% |
| Net loss | $2.27 million | $3.14 million | Loss improved 27% |
| Net loss per share | $0.11 | $0.15 | Improved |
| Cash used in operations | $3.87 million | $3.29 million | Use increased 18% |
System revenue reflected one Niobe system and $0.9 million of Odyssey and Odyssey Cinema revenue in Q1 2016, compared with two Niobe systems, $0.5 million of Odyssey and Odyssey Cinema revenue, and $0.3 million of Vdrive revenue in Q1 2015. Gross-margin expansion primarily reflected a greater mix of disposables, service, and accessories. Systems gross margin declined to 48% from 51%, while disposables, service, and accessories gross margin increased to 83% from 82%.
- Cash and cash equivalents were $1.60 million at March 31, 2016, down from $5.59 million at December 31, 2015.
- Total assets were $15.19 million and total liabilities were $34.81 million, resulting in stockholders’ deficit of $19.62 million.
- Working capital was a deficit of approximately $1.1 million at March 31, 2016, compared with approximately $1.0 million of working capital at year-end 2015.
- Long-term Healthcare Royalty Partners debt was $18.08 million, with a 16% annual interest rate and maturity on December 31, 2018. No borrowings were outstanding under the Silicon Valley Bank revolving line.
- The Silicon Valley Bank facility had $4.9 million of borrowing capacity based on collateralized assets; management reported total liquidity of approximately $6.5 million, including cash.
- Cash used in investing activities was zero. Financing activities used $0.12 million, including $0.10 million of deferred financing costs and $0.03 million of debt payments.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower Niobe and Vdrive system sales volumes.
- Gross margin improved because recurring and higher-margin revenue represented a larger proportion of sales.
- Operating expenses declined 4% overall to $7.95 million: research and development was essentially flat, sales and marketing decreased modestly, and general and administrative expense declined approximately 7%.
- Net loss improved because Q1 2015 included a $0.89 million unfavorable warrant revaluation, while Q1 2016 included $0.03 million of other income from warrant revaluation.
- Despite the lower net loss, operating cash burn increased because of working-capital changes, including reductions in deferred revenue and accrued liabilities.
- No proceeds were generated from the controlled equity offering in Q1 2016; approximately $13.8 million remained available under that facility at March 31, 2016.
Outlook, Risks, Contingencies, and Unusual Items
- Management expects additional losses during 2016 while developing and commercializing products, pursuing clinical adoption and new Niobe ES placements, conducting research and development, and supporting sales and marketing initiatives. The filing provides no formal revenue or earnings guidance.
- Management stated that existing cash, cash equivalents, and borrowing facilities may not be sufficient to fund operations and capital requirements through the next 12 months. The Company may need equity, debt, asset sales, strategic collaborations, or distribution-rights transactions; financing may be unavailable, unfavorable, or dilutive.
- If adequate financing is not obtained, the Company may need to delay development or commercialization, reduce sales and support resources, license technologies to third parties, or potentially cease operations.
- Healthcare Royalty Partners receives 100% of royalties under the Biosense Webster agreement until the loan is repaid. Any royalty shortfall for interest payments increases principal, and the debt is secured by certain assets and intellectual property.
- On May 2, 2016, Nasdaq continued the Company’s listing subject to compliance with a $35 million market-value-of-listed-securities requirement for at least ten consecutive business days by August 1, 2016. The filing states that compliance was not assured.
- On May 10, 2016, Silicon Valley Bank modified financial covenants, including minimum tangible net worth thresholds of no worse than negative $24.0 million for specified quarters through September 30, 2017, and negative $24.5 million for the quarters ending December 31, 2017 and March 31, 2018.
- The Company reported cumulative net losses of approximately $468.2 million as of March 31, 2016. Management reported no material pending legal proceedings or contingencies.
- Warrants were accounted for as Level 3 derivative liabilities totaling $0.76 million at March 31, 2016. Their valuation is sensitive to assumptions, particularly equity-price volatility.
Investor Verification Checklist
- Verify the Company’s ability to raise capital and fund operations beyond the next 12 months.
- Monitor compliance with Nasdaq’s $35 million market-capitalization requirement and related listing status.
- Review compliance with Silicon Valley Bank liquidity and tangible-net-worth covenants.
- Assess the timing and volume of Niobe, Vdrive, and Odyssey placements and the sustainability of recurring disposable, service, license, and royalty revenue.
- Evaluate the repayment risk and cash impact of the 16% Healthcare Royalty Partners debt, including the diversion of Biosense Webster royalties.
- Reconcile reported liquidity with near-term obligations, continuing operating cash burn, deferred revenue, and the Company’s stockholders’ deficit.