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 and services. The company reported unaudited results for the three and nine months ended September 30, 2015. Its installed base was 123 Niobe ES systems.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Total revenue | $9.3 million | $8.9 million | $28.5 million | $25.3 million |
| Systems revenue | $2.3 million | $2.2 million | $8.2 million | $4.7 million |
| Disposables, service and accessories revenue | $7.0 million | $6.7 million | $20.2 million | $20.6 million |
| Gross margin | 74% | 74% | 72% | 76% |
| Operating loss | $(0.9) million | $(1.2) million | $(4.0) million | $(5.7) million |
| Net income (loss) | $(1.0) million | $0.02 million | $(5.7) million | $(6.1) million |
| Net loss per diluted share | $(0.05) | $0.00 | $(0.27) | $(0.31) |
Nine-month operating expenses were $24.5 million versus $25.0 million in the prior-year period. Research and development increased 9% to $4.4 million, sales and marketing increased 5% to $12.0 million, and general and administrative expense decreased 15% to $8.1 million.
Other income was $0.7 million in the third quarter and $0.8 million for the nine months, primarily reflecting non-cash changes in the fair value of warrant liabilities. Interest expense was $0.8 million for the quarter and $2.5 million for the nine months.
Cash used in operating activities was $4.2 million for the nine months, compared with $7.8 million in 2014. Investing cash use was $0.06 million. Financing activities provided $0.6 million, principally from equity issuance, resulting in a $3.7 million net decrease in cash. Cash and cash equivalents were $3.6 million at September 30, 2015, compared with $7.3 million at December 31, 2014.
Total assets were $18.6 million and stockholders’ deficit was $16.6 million at September 30, 2015. The company had $18.3 million of Healthcare Royalty Partners debt, bearing interest at 16% and maturing December 31, 2018. No amounts were outstanding under the $10 million Silicon Valley Bank revolving facility; borrowing capacity was $5.8 million, producing stated total liquidity of $9.4 million including cash.
Material changes versus the prior comparable period
- Third-quarter revenue increased 5%, while nine-month revenue increased 13%.
- Nine-month systems revenue increased 76%, driven primarily by recognition of six Niobe systems and higher system sales volumes.
- Nine-month recurring disposables, service and accessories revenue declined 2%, reflecting currency effects and lower disposable volume, partly offset by higher service revenue.
- Nine-month gross margin declined to 72% from 76% because of a greater mix of system revenue and lower margins on disposables, service and accessories. System gross margin improved to 45% from 37%.
- The nine-month operating loss improved by $1.7 million, but the third quarter moved from a small profit to a $1.0 million net loss, partly because prior-year third-quarter other income was substantially higher.
- Cash declined by approximately $3.7 million during the first nine months, although operating cash use improved from the prior year.
- During the third quarter, the company sold 160,020 shares under its controlled equity offering for $0.3 million of gross proceeds; $13.8 million remained available under the facility at September 30, 2015.
Guidance, outlook, risks and unusual items
Management expected negative operating cash flow into 2015 while continuing product development, commercialization, research and development, and sales and marketing initiatives. Operating expenses were expected to be generally consistent with 2014, with additional investment in targeted areas. The filing provides no specific revenue or earnings guidance.
Management stated that existing cash and borrowing facilities might not be sufficient to fund operating expenses and capital requirements through the next 12 months. The company may need additional equity, asset-sale, collaboration or debt financing, which may be unavailable on acceptable terms or may dilute stockholders. Failure to obtain financing could require reductions in development, commercialization, sales, marketing or support activities and could potentially require the company to cease operations.
Nasdaq notified the company in August 2015 that it did not meet the $35 million minimum market value of listed securities requirement. The company had until February 1, 2016 to regain compliance, subject to applicable Nasdaq conditions. Failure to maintain its listing could impair share liquidity and access to capital.
The company is exposed to foreign exchange risk and had not hedged its currency exposure. Approximately 18% of nine-month revenue and 11% of total expenses were denominated in foreign currencies. A hypothetical 10% strengthening of the U.S. dollar would have reduced revenue by approximately $0.7 million and operating expenses by approximately $0.3 million.
The September 2015 subscription warrant offering expired October 2, 2015. Approximately 0.3 million warrants were exercised by October 8, generating approximately $0.3 million of gross proceeds. Existing warrant liabilities totaled $1.3 million at September 30, 2015 and are subject to valuation volatility.
Management reported that pending ordinary-course legal claims were not expected to have a material effect. Disclosure controls and procedures were assessed as effective, with no material changes in internal control over financial reporting.
Investor verification checklist
- Verify the company’s ability to fund operations through the next 12 months and the timing and terms of any required financing.
- Review Healthcare Royalty Partners debt terms, including the 16% interest rate, royalty sweep, full-recourse provisions, collateral and December 2018 maturity.
- Monitor compliance with Nasdaq’s market-value listing requirement and any subsequent listing determination.
- Assess whether higher Niobe system placements can offset pressure on disposable volumes, service margins and foreign exchange-sensitive revenue.
- Reconcile non-cash warrant revaluations with reported other income and evaluate potential dilution from outstanding warrants, options and restricted stock units.
- Confirm post-quarter warrant exercises and the remaining availability and potential dilution under the controlled equity offering.