Stereotaxis, Inc. Form 10-Q Summary
Business context and reporting period
Quarterly report for the three months ended March 31, 2015, filed May 7, 2015. Stereotaxis designs and markets the Epoch Solution, including Niobe ES magnetic navigation, Odyssey information management, Vdrive robotic navigation, and related disposable devices and services. The installed base was 124 Niobe ES systems at quarter-end.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $9.5 million | $8.4 million | 14% increase |
| Systems revenue | $2.8 million | $1.3 million | 112% increase |
| Disposables, service and accessories revenue | $6.7 million | $7.0 million | 5% decrease |
| Gross profit | $6.9 million | $6.7 million | 2% increase |
| Gross margin | 72% | 81% | Down 9 percentage points |
| Operating loss | $1.4 million | $2.2 million | Loss narrowed |
| Net loss | $3.1 million | $4.1 million | Loss narrowed |
| Basic and diluted loss per share | $0.15 | $0.21 | Improved |
| Cash used in operations | $3.3 million | $2.4 million | Higher use |
Sales and marketing expense increased 11% to $4.0 million due primarily to additional sales personnel and travel. Research and development was substantially unchanged at $1.5 million. General and administrative expense declined 27% to $2.8 million, primarily because of lower regulatory, headcount and consulting costs. Other expense was $0.9 million, consisting principally of a non-cash warrant fair-value adjustment, compared with $1.1 million in the prior-year quarter. Interest expense was $0.8 million.
Cash and cash equivalents declined to $4.4 million at March 31, 2015 from $7.3 million at December 31, 2014. Working capital was approximately $2.3 million, down from $4.6 million. Total assets were $22.0 million, while stockholders’ deficit was $14.8 million. Long-term debt was $18.3 million, consisting of Healthcare Royalty Partners debt. The company had no borrowings under its revolving credit line and reported borrowing capacity of $6.5 million based on collateralized assets.
Material changes versus the prior comparable period
- Revenue growth was driven by higher Niobe and Odyssey system sales, including two Niobe systems, approximately $0.5 million of Odyssey and Odyssey Cinema revenue, and approximately $0.3 million of Vdrive revenue.
- Gross margin declined because systems represented a greater proportion of revenue and system gross margin fell to 51% from 58%. Disposables, service and accessories gross margin declined to 82% from 85%.
- Operating expenses decreased overall despite higher sales and marketing investment, primarily because of lower general and administrative costs.
- Operating loss and net loss improved, but operating cash use increased because changes in working capital consumed approximately $1.6 million.
- The company sold 311,222 common shares through its controlled equity offering for gross proceeds of approximately $0.6 million and net proceeds of $0.6 million. Approximately $14.2 million remained available under the facility at quarter-end.
- The revolving credit facility was amended on March 27, 2015, extending its maturity to March 31, 2018.
Guidance, outlook, risks and unusual items
Management expects negative operating cash flow into 2015. Operating expenses are expected to be generally consistent with 2014, with additional targeted investment. The company plans to continue developing the Niobe ES system to support clinical adoption.
Management states that existing cash, cash equivalents and borrowing facilities may not be sufficient to fund operating expenses and capital requirements through the next 12 months. Additional financing may be required and could be unavailable, costly or dilutive. If adequate funding is unavailable, the company may need to delay product development or commercialization, reduce commercial resources, license technology to third parties or potentially cease operations.
Healthcare Royalty Partners debt bears interest at 16%, matures December 31, 2018, and is repaid through royalties under the Biosense Webster agreement. The lender receives 100% of those royalties until the loan is repaid; unpaid interest can increase principal. The debt is full recourse and secured by certain assets and intellectual property.
The company’s warrant liabilities totaled $3.0 million at quarter-end. Changes in warrant fair value are recorded in other expense and may cause earnings volatility. Foreign-currency sales and expenses were each approximately 10% of relevant totals; management estimates that a 10% strengthening of the U.S. dollar would reduce revenue by approximately $0.2 million and operating expenses by approximately $0.1 million. The company does not hedge foreign-currency exposure.
Pending ordinary-course claims are not expected by management to have a material effect. A letter of credit supports a commitment of less than $0.1 million. In April 2015, the company received gross proceeds of approximately $0.1 million from issuing 65,454 additional shares under the controlled equity offering.
Investor verification priorities
- Verify the company’s cash runway, compliance with the revolving facility’s liquidity and tangible-net-worth covenants, and the timing and terms of any required financing.
- Assess whether system sales can grow without further deterioration in gross margin and whether recurring disposable and service revenue stabilizes.
- Monitor the $18.3 million royalty-backed debt, 16% interest rate, 2018 maturity and impact of royalty diversion on liquidity.
- Track warrant revaluations and their effect on reported earnings, liabilities and stockholder dilution.
- Evaluate the sustainability of the 2015 sales and marketing investment and the company’s progress toward positive operating cash flow.
- Review foreign-exchange exposure, regulatory clearances, clinical adoption and the installed-base trend for Niobe ES systems.