Stereotaxis, Inc. — Form 10-Q Summary
Business context and reporting period
Stereotaxis designs and markets the NIOBE magnetic navigation system and ODYSSEY enterprise and remote-viewing solutions for interventional cardiology. This unaudited filing covers the three and nine months ended September 30, 2011, compared with the corresponding 2010 periods.
Management introduced the NIOBE EPOCH Solution in May 2011, with customer availability expected in December 2011. The transition from NIOBE II materially reduced system sales during the reporting periods.
Key financial metrics
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Total revenue | $8.5 million | $13.9 million | $30.4 million | $39.5 million |
| Systems revenue | $2.0 million | $8.2 million | $11.4 million | $22.8 million |
| Disposables, service and accessories | $6.5 million | $5.7 million | $19.0 million | $16.7 million |
| Gross margin | 69% | 72% | 70% | 70% |
| Operating loss | $(9.1) million | $(3.6) million | $(27.4) million | $(15.5) million |
| Net loss | $(7.3) million | $(5.1) million | $(26.5) million | $(17.4) million |
| Net loss per share | $(0.13) | $(0.10) | $(0.48) | $(0.35) |
- Q3 system revenue declined approximately 75%; management recognized revenue on one NIOBE system versus five in Q3 2010.
- Nine-month system revenue declined approximately 50%; five NIOBE systems were recognized versus sixteen in the prior-year period.
- Disposables, service and accessories revenue increased approximately 14% in both Q3 and the nine-month period, supported by the installed base, service contracts and pricing.
- Q3 system gross margin fell to 15% from 62%, while nine-month system gross margin declined to 43% from 58%. Management attributed the deterioration primarily to overhead absorption at lower production levels and product mix.
- Operating expenses were $14.9 million in Q3 and $48.6 million for nine months. Q3 research and development increased 23%, while sales and marketing declined 5% and general and administrative expenses increased 30%.
- Other income was $2.6 million in Q3 and $3.3 million for nine months, primarily reflecting favorable changes in the fair value of warrant liabilities; this was a non-operating, non-cash item.
Cash flow, liquidity and debt
- Cash and cash equivalents were $17.0 million at September 30, 2011, down from $35.2 million at December 31, 2010.
- Nine-month operating cash flow was $(20.0) million, compared with $(14.1) million in 2010. Investing cash flow was $(1.0) million, and financing cash flow was $2.7 million.
- Working capital was negative $19.9 million at September 30, 2011, compared with positive $12.4 million at December 31, 2010.
- Total debt was $29.0 million, consisting of $16.9 million under the revolving credit facility, $9.0 million under the term note and $3.1 million owed to Biosense Webster. All debt was classified as current at September 30, 2011.
- The September 2011 lender amendment reduced non-term-loan credit availability from $30 million to $20 million and increased the term-loan rate from prime plus 3.5% to prime plus 5.5%. Only approximately $0.1 million of additional revolving capacity was available at September 30, 2011.
- The amendment required at least $10 million of net proceeds by November 30, 2011 from subordinated debt, approved asset sales or licensing, or equity issuance. A non-binding October 11, 2011 term sheet contemplated a non-equity capital raise, but closing remained subject to definitive agreements and customary conditions.
Material changes, outlook and risks
- Management implemented a plan intended to reduce operating expenses by 15% to 20% on an annual run-rate basis through headcount reductions and discretionary spending cuts.
- The company expects continuing losses and negative operating cash flow in 2011 and stated that existing cash and borrowing facilities may not be sufficient to fund operations and capital requirements for the next 12 months.
- Without additional capital or amended debt terms, management stated that covenant compliance was probable to fail by November 30, 2011 and the lender could potentially call outstanding debt.
- Biosense Webster obligations of approximately $3.1 million were due by December 31, 2011 or earlier upon specified accelerating events, with repayment generally tied to royalty offsets and supplemental payments.
- Backlog commitments were removed where revenue recognition was uncertain, including matters related to the migration from NIOBE II to the newer platform; this could negatively affect future revenue.
- A purported shareholder class action filed October 7, 2011 alleges materially false or misleading statements concerning financial condition and business prospects. The company believes the complaint is without merit; potential losses were not estimable at filing.
- Foreign-currency revenue represented approximately 16% of nine-month revenue. Management estimated that a 10% strengthening of the U.S. dollar would reduce nine-month revenue by approximately $0.5 million and operating expenses by approximately $0.5 million.
Important facts for investors to verify
- Whether the proposed $10 million-or-more capital raise closed by November 30, 2011 and satisfied the lender covenant.
- Subsequent changes to the revolving facility, term loan, covenant waivers and debt classification.
- Customer acceptance, launch timing and commercial performance of the NIOBE EPOCH Solution.
- Whether system backlog reductions and the transition from NIOBE II affected subsequent revenue and margins.
- Actual operating cash burn, available liquidity and repayment of the Biosense Webster obligation.
- Developments and potential exposure from the shareholder litigation.