Stereotaxis, Inc. 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 10-K, not a standalone fourth-quarter report. Stereotaxis develops and sells robotic magnetic navigation systems, interventional laboratory information systems, imaging equipment, disposable devices, software updates, service contracts, and related accessories, primarily for electrophysiology and cardiac ablation.
Financial Performance and Position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $28.1 million | $35.0 million | Down approximately 20% |
| Systems revenue | $6.8 million | $11.2 million | Down approximately 39% |
| Disposables, service and accessories | $21.3 million | $22.9 million | Down approximately 7% |
| Gross margin | 66% | 66% | Stable |
| Operating loss | $18.8 million | $12.9 million | Loss increased |
| Net loss | $18.3 million | $10.7 million | Loss increased |
| Net loss attributable to common stockholders | $19.6 million | $12.1 million | Loss increased |
| Basic and diluted loss per share | $0.26 loss | $0.16 loss | Worsened |
| Cash flow from operations | $8.4 million used | $2.9 million used | Greater cash use |
Systems gross margin declined to $1.0 million from $3.6 million, while gross margin on disposables, service and accessories declined to 82% from 86%. Research and development expense increased 4% to $10.6 million, sales and marketing expense increased 3% to $12.3 million, and general and administrative expense increased 3% to $14.4 million.
Interest income was $0.5 million in 2022, compared with less than $0.1 million of net interest expense in 2021, primarily reflecting interest earned on investments. The 2021 results included a $2.2 million gain from forgiveness of the Paycheck Protection Program loan; there was no comparable gain in 2022.
Liquidity, Debt and Cash Flow
- Cash, cash equivalents and restricted cash totaled $9.9 million at December 31, 2022, compared with $40.1 million a year earlier.
- Short-term investments totaled $19.8 million at year-end 2022; combined cash, restricted cash and short-term investments were approximately $29.7 million.
- Working capital was approximately $29.0 million, down from $38.1 million at December 31, 2021.
- The Company reported no debt at December 31, 2022 or December 31, 2021. The prior PPP loan was fully forgiven in 2021.
- Operating cash use was $8.4 million. Investing cash use was $22.1 million, including $19.7 million of investment purchases and $2.4 million for equipment, design and construction costs. Financing activities provided $0.2 million.
- Management stated that available cash, cash equivalents and investments were expected to fund obligations for at least the 12 months following the financial statement date. However, the Company expects operating expenses to exceed gross margin in 2023 and expects continued operating losses and negative cash flows until revenue growth or expense reductions improve the operating profile.
Material Changes and Operating Drivers
- Revenue declined primarily because of lower system sales volumes. Recurring revenue also declined because of service-contract timing, lower procedure volumes and the stronger U.S. dollar.
- COVID-19 resurgences, hospital staffing shortages, supply-chain disruptions, inflationary pressures and logistics delays affected procedure volumes, system placements, manufacturing and hospital construction schedules.
- Inventory increased to $7.9 million from $4.4 million, reflecting actions to increase inventory amid supply-chain uncertainty.
- International revenue fell to $8.4 million from $14.7 million, while U.S. revenue declined modestly to $19.7 million from $20.4 million.
- Backlog increased to approximately $14.8 million at December 31, 2022, from $10.1 million at December 31, 2021. Management expected approximately 89% of the 2022 backlog to be recognized as revenue during 2023, subject to customer construction, regulatory and other contingencies.
- Revenue concentration shifted toward recurring activities: systems represented 24% of revenue in 2022 versus 32% in 2021; other recurring revenue represented 41% versus 34%; royalties represented 7% in both years.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal revenue or earnings guidance. Management expects 2023 operating expenses to exceed 2023 gross margin and anticipates continued operating losses and negative cash flows.
- Key liquidity risks include continued operating losses, the need for potential additional debt or equity financing, and uncertainty regarding the timing and success of new system placements and clinical adoption.
- Backlog may not convert to revenue as expected because orders can be delayed, modified or canceled, and installations depend on hospital construction or renovation projects outside the Company’s control.
- The Company relies on strategic relationships, including Biosense Webster and imaging-system partners, for compatible catheters, mapping technology and integrated systems. Royalty revenue from co-developed Biosense Webster catheters represented 7% of revenue in both years; Biosense Webster’s nonexclusive distribution rights expired December 31, 2022, with supply continuation provisions described in the filing.
- Supply-chain risks include reliance on contract manufacturers and certain sole- or single-source suppliers, including suppliers of magnets and other critical components. International trade restrictions, tariffs, logistics disruptions and geopolitical developments could increase costs or limit supply.
- Medical-device regulation remains a significant risk, including FDA and international clearance requirements, quality-system compliance, post-market obligations, reimbursement uncertainty and the European Medical Device Regulation transition.
- The Company has an accumulated deficit of $517.0 million and gross federal net operating loss carryforwards of approximately $121.7 million, but maintains a full valuation allowance against net deferred tax assets.
- Stock-based compensation was $10.6 million in 2022, including $7.1 million related to the CEO Performance Award. Approximately $44.1 million remained unrecognized under that award at year-end, and up to 13 million shares could be issued if all market-capitalization milestones and service requirements are satisfied.
- Potential dilution is also significant from convertible preferred stock, options, restricted stock units and other reserved shares. The filing identifies approximately 47.4 million shares issuable upon conversion of Series A preferred stock and 5.6 million shares issuable upon conversion of Series B preferred stock.
- Ernst & Young issued an unqualified audit opinion. The critical audit matter was systems revenue recognition, particularly the identification of performance obligations, standalone selling prices, allocation of transaction price and timing of revenue recognition.
Most Important Facts for Investors to Verify
- Whether the $14.8 million backlog converts to revenue during 2023, particularly the expected 89% conversion rate.
- Cash burn, investment balances and the adequacy of liquidity as operating expenses continue to exceed gross margin.
- System placement volumes, recurring procedure volumes and disposable, service and royalty revenue trends.
- Progress in expanding Genesis RMN adoption beyond electrophysiology and into coronary, neurovascular and peripheral applications.
- Status and economics of strategic relationships and availability of compatible catheters, imaging systems and mapping technologies.
- Effects of supply-chain constraints, inflation, hospital staffing shortages and construction delays on deliveries and gross margins.
- Potential dilution from preferred-stock conversions, the CEO Performance Award, options and restricted stock units.
- Regulatory clearances, reimbursement developments and compliance with FDA, European and other international requirements.