Stereotaxis, Inc. — FY2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011. The filing also provides unaudited fourth-quarter results. Stereotaxis develops and sells the Epoch Solution, comprising Niobe robotic magnetic navigation, Odyssey information management, Vdrive robotic navigation, disposables, service contracts, licenses and royalties.
Financial performance and position
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $42.0 million | $54.1 million | Down 22% |
| Systems revenue | $15.6 million | $31.1 million | Down 50% |
| Disposables, service and accessories | $26.4 million | $22.9 million | Up 15% |
| Gross profit | $29.5 million | $38.5 million | Down 23% |
| Gross margin | 70% | 71% | Down 1 percentage point |
| Operating loss | $31.9 million | $19.0 million | Loss widened |
| Net loss | $32.0 million | $19.9 million | Loss widened 61% |
| Loss per share | $0.58 | $0.39 | Loss increased |
| Cash flow from operations | $(31.6) million | $(18.9) million | Greater use of cash |
| Cash and cash equivalents | $14.0 million | $35.2 million | Down $21.3 million |
| Working capital | $(6.6) million | $12.4 million | Shifted to deficit |
| Total debt | $38.5 million | $28.9 million | Up $9.6 million |
Fourth-quarter 2011 revenue was $11.6 million, gross profit was $8.3 million and net loss was $5.5 million, compared with fourth-quarter 2010 revenue of $14.5 million, gross profit of $10.7 million and net loss of $2.5 million.
- Only seven Niobe systems were recognized as revenue in 2011 versus 21 in 2010.
- Recurring revenue increased to 63% of total revenue from 42% in 2010 and 36% in 2009, supported by the installed base, disposables and service contracts.
- System gross margin declined to 45% from 59%, primarily due to lower volume and absorption of overhead costs based on normal production levels.
- Research and development expense increased 5% to $12.9 million; sales and marketing rose 5% to $31.6 million; general and administrative expense rose 13% to $16.9 million.
- Other income included a $3.4 million favorable warrant fair-value adjustment, a non-cash item.
Material changes versus the prior period
- The May 2011 introduction of the Niobe ES system caused customers to defer or shift away from Niobe II purchases. Niobe ES became available to customers in December 2011, and six Niobe II upgrades had been installed by year-end.
- Backlog declined to approximately $20 million at December 31, 2011 from $43 million at December 31, 2010. Management expected approximately 82% of the 2011 backlog to be recognized in 2012, subject to customer and construction contingencies.
- The company implemented a plan during the third quarter to reduce operating expenses by 15% to 20% on an annual run-rate basis through headcount reductions and discretionary spending cuts.
- International revenue declined to $18.0 million from $25.2 million, while U.S. revenue declined to $23.9 million from $28.8 million.
- The company repaid the Biosense Webster advance and related accrued interest in full during 2011.
Liquidity, debt and outlook
- At year-end, $15.3 million was outstanding under the revolving credit facility, with approximately $0.7 million of additional borrowing capacity based on current limits. The facility was secured by substantially all company assets.
- The company had an $8.0 million term loan and $15.2 million of Cowen debt. The Cowen loan bears interest at 16%, matures December 31, 2018, and is repaid from royalties under the Biosense Webster agreement. An additional $5 million could become available upon achievement of specified 2012 Niobe sales milestones.
- Approximately $21.2 million of debt principal was contractually due within one year as of December 31, 2011, including the revolving facility due March 2012.
- Management expected negative operating cash flow and additional losses in 2012, although sales and marketing, research and development, and general and administrative expenses were expected to decrease.
- Management stated that existing cash and borrowing facilities would not fund operations and capital requirements through the following 12 months and that additional financing would be required. The auditors included a substantial-doubt going-concern paragraph.
Risks, contingencies and unusual items
- Key risks include continuing losses, insufficient liquidity, debt maturities and covenants, possible dilution from future financing, and the potential inability to continue as a going concern.
- Revenue is subject to lengthy hospital sales and installation cycles, construction delays, cancellations, regulatory approvals, reimbursement, economic conditions and conversion of backlog into completed installations.
- The company faces medical-device regulatory, product liability, warranty, intellectual property, cybersecurity/privacy, healthcare compliance and reimbursement risks.
- Two shareholder lawsuits were filed in late 2011: a securities class action and a derivative action alleging misleading statements and fiduciary-duty violations. The company considered both actions without merit, but stated that outcomes and potential losses could not yet be estimated.
- The company received a Nasdaq notice in January 2012 regarding noncompliance with the $1.00 minimum bid-price requirement. A reverse stock split was identified as a possible response.
- Potential dilution included approximately 5.6 million shares issuable under options and stock appreciation rights and 10.4 million shares issuable under warrants at December 31, 2011.
- The company entered into a $1.2 million magnet purchase obligation, to be settled in February 2012, and had a letter of credit of less than $0.1 million valid through 2015.
Investor verification checklist
- Verify refinancing, repayment or amendment of the revolving credit facility due March 31, 2012 and ongoing compliance with debt covenants.
- Assess whether Niobe ES adoption and upgrades can restore system revenue and rebuild backlog.
- Track operating cash burn, available liquidity, financing activity and potential equity dilution.
- Evaluate recurring revenue growth, utilization of the installed base and Biosense Webster royalty performance after the Cowen financing.
- Review the status and potential financial impact of the shareholder litigation and Nasdaq listing compliance.
- Confirm the timing and amount of revenue recognized from the approximately $20 million year-end backlog.