Stereotaxis, Inc. 10-Q Summary: Period Ended September 30, 2007
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Stereotaxis, Inc., filed for the period ended September 30, 2007. The company designs, manufactures, and markets the Stereotaxis System, an advanced cardiology instrument control system using magnetic navigation for interventional procedures. The company is an accelerated filer incorporated in Delaware.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 |
|---|---|---|
| Total Revenue | $12.05 million | $29.04 million |
| Gross Margin | $8.01 million (66.5%) | $17.42 million (60.0%) |
| Operating Loss | $(10.66 million) | $(36.90 million) |
| Net Loss | $(10.40 million) | $(35.91 million) |
| Net Loss Per Share (Basic/Diluted) | $(0.29) | $(1.01) |
| Cash and Cash Equivalents | $26.43 million (as of Sep 30, 2007) | |
| Short-term Investments | $2.13 million (as of Sep 30, 2007) | |
| Working Capital | ~$28.4 million | |
| Long-term Debt | ~$2.22 million total (including current portion) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 58% year-over-year for the quarter and 120% for the nine-month period. System sales rose 49% (quarter) and 120% (nine months) due to increased deliveries (9 systems vs. 7 in Q3; 20 systems vs. 11 in YTD). Disposables and service revenue doubled in the quarter and increased 121% YTD.
- Expense Increases: Operating expenses rose significantly. R&D increased 20% (Q3) and 13% (YTD) due to development of the integrated cath lab display and new catheters. Sales and marketing expenses increased 30% (Q3) and 26% (YTD) driven by expanded headcount.
- Inventory Adjustment: Cost of revenue for the nine-month period included a $1.9 million non-cash inventory impairment charge related to first-generation Niobe systems.
- Capital Structure: The company completed a common stock offering in March 2007, raising approximately $20.1 million in net proceeds. Short-term investments decreased significantly from $21.8 million (Dec 31, 2006) to $2.1 million (Sep 30, 2007) as funds were utilized or matured.
Guidance, Outlook, and Risks
- Outlook: Management expects negative cash flow from operations to continue through 2007. Total operating expenses for the full year are expected to increase by less than 25% over 2006 levels.
- Liquidity: The company maintains a $25 million working capital line of credit with approximately $11.2 million currently available. Management believes existing cash, investments, and credit lines are sufficient to fund operations for the next 12 months, though additional financing may be required.
- Backlog: Purchase orders and commitments for systems and displays were approximately $58 million as of September 30, 2007. Management notes that orders are subject to contingencies and may be revised or cancelled.
- Risks: Key risks include the need for additional financing, competition from a newly commercialized catheter delivery system by a public competitor, and foreign currency exchange fluctuations (a 10% Euro fluctuation could impact revenue by 2-3%).
- Accounting Changes: In Q2 2007, the company began recognizing revenue for system sales and installation as separate elements under SAB 104 and EITF 00-21.
Investor Verification Checklist
- Verify the sustainability of the 120% year-over-year revenue growth and the conversion rate of the $58 million backlog into recognized revenue.
- Assess the impact of the $1.9 million inventory impairment on future gross margins and the remaining inventory value of first-generation systems.
- Monitor the burn rate of cash given the expectation of continued negative operating cash flow through 2007.
- Review the competitive landscape regarding the new catheter delivery system mentioned in the risk factors.
- Confirm compliance with debt covenants, specifically the quick asset ratio requirement of 1.75 to 1.