Stereotaxis, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and markets robotic magnetic navigation systems, interventional-lab information systems, accessories, services, and disposable devices used primarily in cardiac procedures. The report covers the three and six months ended June 30, 2019. The company reported an installed base of 126 Niobe ES systems at June 30, 2019.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $6.8 million, versus $7.6 million | $13.8 million, versus $14.5 million |
| Gross margin | $5.7 million; 83%, versus 82% | $11.2 million; 81%, approximately unchanged |
| Operating loss | $1.5 million, versus $0.6 million | $3.6 million, versus $1.8 million |
| Net income (loss) | $(1.4) million, versus $(0.6) million | $(3.6) million, versus $0.8 million |
| Loss attributable to common stockholders | $(1.8) million; $(0.03) per share | $(4.3) million; $(0.07) per share |
| Cash flow from operating activities | $(2.3) million for the six months, versus $(1.5) million |
Second-quarter revenue consisted of $6.5 million from disposables, service and accessories and $0.3 million of sublease revenue; there were no system sales. Six-month revenue included $0.1 million of systems revenue, $13.3 million from disposables, service and accessories, and $0.5 million of sublease revenue.
Cash and cash equivalents were $8.5 million at June 30, 2019, down from $10.8 million at December 31, 2018. Total liquidity, including borrowing capacity, was $11.9 million. The company had no outstanding balance on its secured revolving credit facility, which had $3.4 million of borrowing capacity and a $5.0 million maximum commitment, subject to collateral. The facility matures June 30, 2020.
Total liabilities were $16.6 million, including $5.3 million of operating lease liabilities recognized under the new lease standard and $7.0 million of total deferred revenue. Stockholders’ equity was negative $1.3 million at June 30, 2019, compared with positive $1.3 million at year-end 2018. Convertible preferred stock of approximately $5.9 million is presented in the mezzanine section of the balance sheet.
Material Changes Versus the Prior Comparable Period
- Three-month revenue declined 10%, primarily because system sales fell from $0.3 million to zero and service revenue decreased.
- Six-month revenue declined approximately 5%; systems revenue decreased approximately 82%, while disposables, service and accessories revenue declined approximately 7%.
- Gross margin improved modestly in the second quarter to 83%; excluding the impact of lease accounting, management reported an 86% margin. Six-month reported gross margin was 81%, or 84% excluding lease-accounting effects.
- Research and development expense increased 33% in the quarter and 42% year to date due primarily to new project and project-based spending.
- Sales and marketing expense decreased 6% in the quarter and 8% year to date, reflecting more efficient allocation of clinical-adoption and marketing resources.
- Operating losses increased as lower revenue and higher research and development costs more than offset lower sales and marketing expense.
- Cash used in operating activities increased to $2.3 million from $1.5 million. Financing cash flow was nearly zero in 2019 compared with $9.9 million of proceeds in the 2018 period, primarily from warrant exercises.
Guidance, Outlook, Risks and Unusual Items
- Management expects 2019 expenses to exceed 2019 gross margin and expects continuing operating losses and negative cash flows until revenue growth or expense reductions support operations.
- Management stated that cash on hand at June 30, 2019 was expected to fund ordinary-course obligations for at least 12 months after issuance of the financial statements, but also noted potential future debt or equity financing needs.
- Liquidity depends substantially on clinical adoption within the installed base and new placements of capital systems. Failure to obtain additional financing could require reductions or delays in product development, commercialization, sales, marketing, or customer support, and could potentially require cessation of operations.
- The company depends on strategic technology relationships and compatible imaging systems. Availability of current compatible fluoroscopy systems may decline, and replacement systems may not be available on acceptable terms or at all.
- ASC 842 lease adoption increased assets and liabilities through recognition of approximately $5.2 million of operating lease right-of-use assets at June 30, 2019. It also produced $0.5 million of sublease revenue and $0.5 million of related sublease cost in the first six months.
- Remaining performance obligations on system contracts were approximately $2.6 million at June 30, 2019, generally expected to be recognized within two years, although some obligations may extend longer.
- On August 7, 2019, after quarter-end, the company completed a private placement of 6.585 million common shares and 5.610 million Series B convertible preferred shares at $2.05 per share, receiving approximately $23.1 million of net proceeds for general corporate purposes. The Series B preferred shares are convertible into common stock on a one-for-one basis, subject to stated adjustments and ownership limitations.
- Management stated that pending ordinary-course legal claims were not expected to have a material effect. Disclosure controls and procedures were evaluated as effective, with no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether recurring service, disposable, royalty, and sublease revenue can offset weak capital-system placements.
- The pace of cash use, operating-loss reduction, and the duration of liquidity after the August 2019 equity financing.
- The terms, conversion impact, and potential dilution from Series A preferred stock, Series B preferred stock, warrants, options, and restricted stock units.
- The June 30, 2020 maturity and collateral requirements of the Silicon Valley Bank revolving facility.
- Clinical adoption, utilization, and procedure growth across the 126-system Niobe ES installed base.
- Availability of compatible imaging and technology-partner systems required for commercialization.
- The effect of lease accounting, deferred revenue, and approximately $2.6 million of remaining system-contract performance obligations on future reported revenue and cash flow.