Stereotaxis, Inc. Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs, manufactures and markets magnetic catheter-navigation systems, including the Niobe system and Odyssey Enterprise solutions, for hospital interventional cardiology suites. This unaudited quarterly report covers the three and six months ended June 30, 2011, compared with the corresponding 2010 periods.
Key Financial Metrics
| Metric | Q2 2011 | Q2 2010 | Six Months 2011 | Six Months 2010 |
|---|---|---|---|---|
| Total revenue | $11.6 million | $15.0 million | $21.8 million | $25.6 million |
| Gross margin | 70% | 67% | 70% | 69% |
| Operating loss | $(9.5) million | $(5.7) million | $(18.3) million | $(11.9) million |
| Net loss | $(9.7) million | $(3.9) million | $(19.2) million | $(12.3) million |
| Net loss per share | $(0.18) | $(0.08) | $(0.35) | $(0.25) |
| Cash used in operations | Not provided for quarter | Not provided for quarter | $(14.8) million | $(13.1) million |
- Q2 systems revenue was $5.0 million, down 47% year over year; the company recognized revenue on three Niobe systems versus seven in Q2 2010.
- Q2 disposables, service and accessories revenue increased 18% to $6.6 million, supported by the larger installed base, service contracts and favorable pricing.
- Six-month systems revenue declined 37% to $9.3 million, while disposables, service and accessories revenue increased 14% to $12.5 million.
- Operating expenses increased 12% in Q2 to $17.6 million and 13% for the six-month period to $33.6 million. Sales and marketing and general and administrative expenses increased, while research and development remained approximately flat.
- Cash and cash equivalents were $23.3 million at June 30, 2011, compared with $35.2 million at December 31, 2010. Working capital was negative $6.9 million versus positive $12.4 million at year-end.
- Total debt was $30.5 million, including $24.5 million classified as current. Stockholders’ equity was negative $7.0 million at June 30, 2011.
Material Changes Versus the Prior Comparable Period
- Revenue declined 23% in Q2 and 15% for the first six months, principally because of lower Niobe system sales.
- Gross margin improved because recurring revenue represented a larger proportion of total revenue, although system gross margin declined to 50% in Q2 from 54% and to 49% for the six months from 56%.
- Sales and marketing expense increased 15% in Q2 and 19% for the six months, reflecting higher headcount, utilization initiatives and the Niobe EPOCH launch. General and administrative expense increased 16% and 13%, respectively.
- Net loss expanded materially, and operating cash use increased to $14.8 million for the first six months from $13.1 million in the prior-year period.
- Interest expense increased to $0.8 million in Q2 and $1.6 million for the six months, primarily due to higher average debt balances.
- Other income included non-cash warrant fair-value gains of $0.6 million in Q2 and $0.6 million for the six months; warrant liabilities were $2.9 million at June 30, 2011.
Guidance, Outlook, Risks and Unusual Items
- Management expected negative operating cash flow for 2011 and anticipated continued spending on commercialization, sales and marketing, general and administrative activities, product development and clinical programs.
- The company stated that its existing cash, cash equivalents and borrowing facilities might not fund operating and capital requirements for the next 12 months.
- The $30 million working-capital facility and related lender financing commitment were scheduled to expire March 31, 2012. Management was discussing renewal or modification with the primary lender.
- Without renewal or modification, management stated it was probable that the company would fail certain bank covenants as of September 30, 2011, potentially allowing the lender to call outstanding debt. The debt is secured by substantially all company assets.
- The revolving facility had $15.8 million outstanding and approximately $2.1 million of additional borrowing capacity based on collateralized assets at June 30, 2011. The company was in covenant compliance at that date.
- Approximately $4.7 million owed to Biosense Webster was classified as short-term debt and was due no later than December 31, 2011, subject to earlier repayment upon specified accelerating events.
- Management identified backlog sales for which revenue recognition was uncertain, including issues related to migration from Niobe II to Niobe ES, and removed certain systems from backlog. This could reduce future revenue recognition.
- On August 8, 2011, after quarter-end, the company announced a plan to rebalance and reduce operating expenses to lower cash burn while continuing selected research and development. Related expenses were to be recorded as incurred; the filing did not provide a quantified financial impact.
- Foreign-currency exposure was not hedged. Management estimated that a 10% strengthening of the U.S. dollar would reduce six-month revenue by approximately $0.4 million and reduce foreign-currency-denominated operating expenses by approximately $0.4 million.
- Management reported that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Investor Verification Items
- Verify renewal, amendment or refinancing of the revolving credit facility and the company’s compliance with debt covenants after September 30, 2011.
- Assess liquidity relative to the $24.5 million of current debt, the Biosense Webster obligation and ongoing operating cash burn.
- Monitor system order volume, backlog removals and revenue-recognition timing during the Niobe product transition.
- Evaluate whether recurring disposables and service revenue can offset continued weakness in system sales.
- Quantify the effect of the August 2011 expense-reduction plan, including severance and other restructuring costs.
- Review the impact of warrant fair-value adjustments, stock-based compensation and potential equity financing dilution.
- Confirm the timing and amount of the remaining Biosense Webster repayment obligations and related royalty offsets.