Stereotaxis, Inc. — 2021 Q1 Form 10-Q Summary
Business context and reporting period
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems, related disposable devices, service offerings and workflow solutions for hospital interventional laboratories. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $8.6 million | $5.8 million | Up 50% |
| Systems revenue | $2.6 million | $0 | New system revenue |
| Disposables, service and accessories | $5.8 million | $5.5 million | Up approximately 5% |
| Gross profit | $6.0 million | $4.8 million | Up approximately 25% |
| Gross margin | 70% | 83% | Down 13 percentage points |
| Operating loss | $1.5 million | $2.1 million | Improved $0.5 million |
| Net loss | $1.5 million | $2.0 million | Improved $0.4 million |
| Loss attributable to common stockholders | $1.9 million | $2.3 million | Improved $0.5 million |
| Basic and diluted loss per share | $0.02 loss | $0.03 loss | Improved |
| Cash flow from operations | $0.3 million used | $2.2 million used | Improved $1.9 million |
Operating expenses were $7.5 million, compared with $6.9 million in the prior-year quarter. Research and development increased 12% to $2.4 million, sales and marketing remained approximately $2.9 million, and general and administrative expense increased 22% to $2.2 million. The operating margin was approximately negative 18% and the net margin was approximately negative 18%.
At March 31, 2021, cash and cash equivalents were $42.5 million. Including $1.4 million of restricted cash and a $0.3 million compensating cash balance, total cash and related balances were approximately $44.1 million. Working capital was $39.9 million, compared with $39.1 million at December 31, 2020.
Total debt was approximately $2.2 million, consisting primarily of the Paycheck Protection Program loan. Current and long-term debt totaled approximately $2.2 million at March 31, 2021, compared with approximately $2.2 million at year-end 2020. The prior working-capital line of credit matured June 30, 2020 and was not renewed.
Cash used in investing activities was $34,000, primarily for equipment. Financing activities provided $282,000 from stock issuances. Cash and cash equivalents decreased by approximately $57,000 during the quarter.
Material changes versus the prior comparable period
- Revenue increased $2.9 million, primarily because of $2.6 million of system revenue and higher disposable, service and accessory revenue.
- Gross margin declined because system sales carry lower margins than the recurring revenue mix and because of product mix changes. System cost of revenue was $1.4 million in Q1 2021 versus less than $0.1 million in Q1 2020.
- Operating loss narrowed despite higher research and development and general and administrative spending.
- Accounts receivable increased to $7.3 million from $3.5 million, while deferred revenue increased to $9.5 million from $5.8 million, including customer deposits and deferred system, service and license revenue.
- Procedure volumes were approximately 5% above Q1 2020 but remained approximately 15% below Q1 2019 levels outside the Asia-Pacific region.
- Stock-based compensation increased to $1.4 million from $0.7 million, including $0.7 million related to the new CEO Performance Award.
Guidance, outlook, risks and unusual items
The filing does not provide specific quantitative revenue or earnings guidance. Management expects COVID-19-related disruptions to procedure volumes, service activities and system placements to continue periodically during 2021, with capital system orders potentially delayed. Manufacturing and supply chains had been minimally interrupted through the filing date, but further disruption remained possible.
The CEO Performance Award granted February 23, 2021 covers up to 13 million shares tied to market capitalization milestones ranging from $1.0 billion to $5.5 billion and continued service through 2030. The company recorded $0.7 million of related compensation expense in Q1 and estimated approximately $56.7 million of remaining unrecognized expense, regardless of whether milestones are achieved. Full vesting could materially dilute existing stockholders and may affect change-of-control transactions.
The company applied for forgiveness of its $2.2 million PPP loan. Management anticipated substantial forgiveness; any unforgiven portion would be repayable beginning August 2021, with final repayment in April 2022, at 1% interest.
The company entered into a ten-year lease for approximately 43,100 square feet of new executive, administrative and manufacturing space, effective no earlier than January 1, 2022. Minimum annual rent is expected to range from approximately $0.8 million in 2022 to $1.0 million in 2031.
A shareholder class action filed in April 2021 challenged disclosures concerning the CEO Performance Award. The company supplemented its proxy statement; the plaintiff withdrew the preliminary-injunction motion and indicated an intent to dismiss the claims with prejudice, subject to court approval and a possible application for attorneys’ fees and expenses.
Additional risks include dependence on strategic technology relationships and regulatory clearances, long and variable hospital sales cycles, potential customer payment delays, supply-chain interruptions, continued operating losses and dilution from convertible preferred stock, warrants, options, restricted units and the CEO award.
Investor verification points
- Verify the sustainability of system placements and the recovery in procedure volumes after COVID-19 effects.
- Assess whether the lower 70% gross margin reflects a temporary system-sales mix or a recurring change.
- Monitor accounts receivable, customer deposits and deferred revenue for collection, cancellation and recognition risks.
- Confirm the final treatment and forgiveness status of the PPP loan.
- Review the shareholder approval and subsequent accounting treatment of the CEO Performance Award and its potential dilution.
- Evaluate liquidity against continuing operating losses, new facility commitments and the absence of a revolving credit facility.