Stereotaxis, Inc. — Q1 2020 Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs and markets robotic magnetic navigation systems, interventional lab solutions, and related disposable devices for cardiac procedures. The filing covers the unaudited three months ended March 31, 2020, compared with the three months ended March 31, 2019. The company had 123 installed Niobe ES Systems as of March 31, 2020.
Financial Performance and Liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $5.756 million | $7.010 million | Down 17.9% |
| Systems revenue | $0 | $0.058 million | Down $0.058 million |
| Disposables, service and accessories revenue | $5.510 million | $6.711 million | Down 17.9% |
| Sublease revenue | $0.247 million | $0.241 million | Up 2.3% |
| Gross margin | $4.805 million; 83% | $5.598 million; 80% | Margin up approximately 3 points |
| Operating loss | $(2.052) million | $(2.139) million | Improved 4.1% |
| Net loss | $(1.972) million | $(2.123) million | Improved 7.1% |
| Loss attributable to common stockholders | $(2.315) million | $(2.476) million | Improved 6.5% |
| Basic and diluted loss per share | $(0.03) | $(0.04) | Improved |
| Cash flow from operations | $(2.166) million | $(1.777) million | Use increased $0.389 million |
Operating expenses were $6.857 million, down from $7.737 million. Research and development declined 29% to $2.109 million, sales and marketing declined 12% to $2.915 million, and general and administrative expenses increased 25% to $1.833 million, primarily due to higher non-cash director compensation.
Cash and cash equivalents were $28.025 million at March 31, 2020, compared with $30.182 million at December 31, 2019. Working capital was approximately $25.3 million, versus $26.7 million at year-end 2019. Total liquidity was $31.4 million, including $3.4 million of borrowing capacity under the revolving credit facility.
The company had no outstanding balance under its Silicon Valley Bank revolving line of credit at March 31, 2020. The facility had a maximum availability of $5.0 million, subject to collateral, and was scheduled to mature on June 30, 2020. The balance sheet also included $3.842 million of operating lease liabilities at March 31, 2020. No cash dividends had been declared or paid.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower disposable sales and reduced service revenue; no system delivery or installation revenue was recognized in Q1 2020.
- Gross margin improved to approximately 83% from 80%, primarily because of lower service-contract costs and the revenue mix.
- Operating and net losses narrowed despite the revenue decline because of lower research and development and sales and marketing spending.
- Operating cash use increased because of inventory purchases, with inventories rising to $3.170 million from $1.848 million at December 31, 2019.
- Common shares outstanding increased to 69.041 million at March 31, 2020 from 68.530 million at December 31, 2019. The company also had substantial potential dilution from preferred stock, options, warrants, and restricted stock units.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide quantitative revenue or earnings guidance. Management stated that COVID-19 had reduced procedures, installations, service activity, and customer contacts. By the end of March, weekly procedure volumes in the United States and Europe had declined to approximately 70% of the Q4 2019 rate; Asia-Pacific procedures had recovered to approximately 70% of the Q4 2019 average after reaching approximately 40% during the height of the regional disruption.
Management expected procedure volume, installations, service activities, and capital system orders to decline or be delayed in the second quarter and beyond. The company also warned that recovery could vary by geography and might not be linear. Risks include hospital budget pressure, postponement of elective procedures, supply-chain interruptions, travel restrictions, customer payment delays, reduced access to capital markets, and the loss or disruption of strategic technology relationships.
As of the filing date, manufacturing and supply-chain interruptions were described as minimal, although the company could not predict the extent or duration of future disruptions. The company was evaluating and implementing cost and spending reductions.
After quarter-end, the company received $2.158 million under the Paycheck Protection Program on April 20, 2020. It stated that it intended to use the proceeds primarily for payroll, rent, and utilities and expected the loan to be fully forgiven. The loan bears 1.00% interest and matures April 20, 2022, subject to program requirements.
Management stated that ordinary-course legal claims were not expected to have a material effect. Disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Track the duration and severity of COVID-19 effects on procedure volumes, hospital capital spending, installations, service revenue, and disposable utilization.
- Verify whether the April 2020 PPP loan qualifies for full forgiveness and assess any related accounting or cash-flow effects.
- Monitor the June 30, 2020 maturity of the Silicon Valley Bank credit facility and the company’s access to replacement or additional liquidity.
- Assess cash burn, inventory levels, and the company’s ability to fund operations while continuing to report losses.
- Review dilution exposure from 42.7 million shares issuable upon conversion of Series A preferred stock and accumulated dividends, 5.6 million Series B preferred shares, 2.7 million options and stock appreciation rights, warrants, and restricted stock units.
- Evaluate the effect of strategic supplier and technology relationships on product compatibility and commercialization.