Stereotaxis, Inc. 2013 Form 10-K Summary
Business context and reporting period
Stereotaxis designs and markets robotic navigation and information-management systems for cardiac electrophysiology and interventional cardiology. Its Epoch Solution includes the Niobe ES robotic magnetic navigation system, Odyssey information-management platform, Vdrive robotic navigation system, and related disposable devices, services, licenses and royalties.
This filing covers the fiscal year ended December 31, 2013. The filing also provides unaudited fourth-quarter 2013 results. The Company had an installed base of 100 Niobe ES systems at year-end and approximately 123 employees.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $38.0 million | $46.6 million | Down 18% |
| Systems revenue | $12.7 million | $19.7 million | Down 35% |
| Disposables, service and accessories revenue | $25.3 million | $26.9 million | Down 6% |
| Gross profit | $27.0 million | $31.8 million | Down 15% |
| Gross margin | 71% | 68% | Up 3 percentage points |
| Operating loss | $8.8 million | $10.6 million | Improved |
| Net loss | $68.8 million | $9.2 million | Significantly worse |
| Basic and diluted loss per share | $5.95 | $1.33 | Significantly worse |
| Cash flow from operations | $(6.3) million | $(12.1) million | Improved |
| Cash and cash equivalents | $13.8 million | $7.8 million | Increased |
| Working capital | $4.4 million | $(5.7) million | Improved |
| Total debt | $18.5 million | $29.1 million | Down $10.6 million |
The 2013 net loss included approximately $47.3 million of non-cash expense from warrant and convertible-debt fair-value adjustments, plus $12.6 million of interest expense, including the write-off of unamortized debt discount associated with 2013 capital transactions. The filing does not present a meaningful conventional net profit margin because the Company remained loss-making; gross margin was 71% and operating margin was approximately negative 23%.
Fourth-quarter 2013 revenue was $9.1 million, gross profit was $6.2 million and net loss was $4.0 million. Fourth-quarter revenue declined from $12.2 million in the comparable 2012 quarter.
Material changes versus prior comparable period
- Revenue declined primarily because system revenue fell to $12.7 million from $19.7 million. The Company recognized revenue on nine Niobe ES systems in both 2013 and 2012, but recognized less revenue from upgrades, Odyssey systems and Vdrive systems in 2013.
- Recurring revenue from disposables, services and accessories also declined because of lower disposable utilization.
- Gross margin improved because the revenue mix shifted toward higher-margin disposables, services and accessories. Systems gross margin decreased to 46% from 50%, while disposables, service and accessories gross margin increased to 84% from 82%.
- Operating expenses fell to $35.9 million from $42.4 million, including reductions in research and development, sales and marketing, and general and administrative spending.
- Cash used in operations improved to $6.3 million from $12.1 million, while financing activities provided $12.3 million, principally from equity and warrant transactions.
- The Company completed significant 2013 financing and capitalization actions. Convertible debentures were exchanged for common stock and warrants, certain warrants were exercised, and a rights offering generated approximately $10.2 million of gross proceeds. Shares issued increased to 19.3 million at year-end from 8.0 million at year-end 2012, creating substantial dilution.
- The $10 million term note was repaid in September 2013. At year-end, the revolving credit facility had no outstanding balance but had only $3.0 million of availability and was scheduled to mature on March 31, 2014. Healthcare Royalty Partners debt was $18.5 million and bears 16% annual interest, payable through Biosense Webster royalties.
Guidance, outlook, risks and unusual items
- Management expected additional losses and negative operating cash flow into 2014. Operating expenses were expected to be generally consistent with 2013, with additional investment in targeted areas.
- Management stated that existing cash, cash equivalents and borrowing facilities might not fund operations and capital requirements through the next 12 months, requiring additional financing. The filing does not provide a specific revenue or earnings forecast.
- Auditors expressed substantial doubt about the Company’s ability to continue as a going concern because of recurring operating losses and a net capital deficiency. Stockholders’ deficit was $11.7 million at December 31, 2013, and cumulative net losses were approximately $453.4 million.
- Backlog declined to approximately $6.8 million at year-end 2013 from $8.9 million at year-end 2012 and $20.0 million at year-end 2011. Management expected approximately 75% of 2013 year-end backlog to be recognized in 2014, but noted that orders could be delayed, modified or canceled.
- Key operating risks include hospital adoption of expensive capital equipment, lengthy and variable installation cycles, dependence on Siemens, Philips and Biosense Webster, regulatory and reimbursement approvals, competition from manual and robotic alternatives, reliance on contract manufacturers and suppliers, and foreign-exchange exposure.
- The Company faced securities class-action and shareholder-derivative litigation. The securities class action was dismissed in March 2014, subject to a possible appeal; the derivative action remained pending and its outcome could not be estimated.
- International revenue was $14.0 million, or approximately 37% of total revenue, compared with $19.5 million in 2012. The Company had not hedged foreign-currency exposures.
- The Company recognized no subsequent events in the financial statements. Management reported that disclosure controls and internal control over financial reporting were effective as of December 31, 2013.
Important facts for investors to verify
- Whether the revolving credit facility was renewed or replaced after its March 31, 2014 maturity and whether the Company obtained sufficient financing to address the going-concern uncertainty.
- The repayment trajectory and effective cash cost of the $18.5 million Healthcare Royalty Partners debt, including the effect of diverting Biosense Webster royalties to debt service.
- Revenue conversion from the $6.8 million backlog and the timing of system installations, upgrades and recurring disposable utilization.
- Actual 2014 operating cash burn, revenue trends and progress toward profitability.
- The effect of 2013 equity issuances, warrant exercises and remaining warrants on dilution and share price.
- Regulatory status and commercial adoption of Vdrive products, V-Loop and other disposable devices, particularly in the United States and Japan.
- The outcome of the shareholder derivative litigation and any related indemnification or defense costs.