Stereotaxis, Inc. Form 10-Q Summary
Business context and reporting period
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems, imaging and lab-integration solutions, disposable devices, services and related products for hospital interventional laboratories. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, filed November 12, 2021.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $9.1 million, versus $8.7 million | $26.8 million, versus $19.8 million |
| Gross margin | 52%, versus 54% | 65%, versus 69% |
| Operating loss | $(4.6) million, versus $(1.6) million | $(9.5) million, versus $(5.5) million |
| Net loss | $(4.6) million, versus $(1.6) million | $(7.4) million, versus $(5.5) million |
| Loss attributable to common stockholders | $(5.0) million, or $(0.07) per share | $(8.4) million, or $(0.11) per share |
| Cash flow from operations | Not separately provided for the quarter | $(0.9) million, versus $(3.8) million |
Nine-month revenue included systems revenue of $8.8 million, disposables, service and accessories revenue of $17.2 million, and sublease revenue of $0.7 million. Systems revenue increased substantially, while recurring product and service revenue increased more modestly.
At September 30, 2021, cash and cash equivalents were $40.2 million, restricted cash was $2.3 million, and total cash, cash equivalents and restricted cash were $42.5 million. Working capital was $39.6 million. The Company reported no debt, compared with $2.2 million of short- and long-term debt at December 31, 2020, following forgiveness of its PPP loan.
Total assets were $61.9 million and stockholders’ equity was $34.6 million at September 30, 2021. Deferred revenue totaled $8.5 million, including $1.8 million classified as long-term. Remaining performance obligations on system contracts were approximately $6.5 million.
Material changes versus the prior comparable periods
- Third-quarter revenue increased 5%, primarily from higher system sales; disposables, service and accessories revenue declined approximately 3% because of lower procedures and service revenue.
- Nine-month revenue increased approximately 35%, driven by systems revenue rising from $3.0 million to $8.8 million and disposables, service and accessories revenue rising approximately 7%.
- Gross margin declined to 52% for the quarter and 65% for the nine months, primarily because of product mix. Nine-month systems gross margin improved to $2.6 million from a negative $0.3 million.
- Research and development expense increased 28% for the quarter and 26% for the nine months, reflecting higher project spending and measured hiring.
- General and administrative expense increased to $3.9 million for the quarter and $10.3 million for the nine months, primarily because of CEO performance-award stock compensation and higher professional fees.
- Operating cash use improved to $0.9 million for the nine months from $3.8 million, although investing cash use increased to $1.0 million due largely to equipment and design costs for the new facility.
- The $2.2 million PPP loan was fully forgiven in June 2021, producing a $2.2 million gain on debt extinguishment.
Guidance, outlook, risks and unusual items
- The filing does not provide formal revenue, earnings or cash-flow guidance. Management expects procedure volumes, service activity and system placements to continue experiencing significant periodic COVID-19-related disruptions during 2021.
- Third-quarter procedure volumes declined approximately 9% from the third quarter of 2020 because of COVID-19 resurgence and hospital staffing shortages. Travel restrictions, supply-chain concerns and uneven recovery across geographies remained relevant.
- Management stated that manufacturing and supply-chain disruptions had been manageable as of the filing date, but warned that more severe interruptions could materially affect production, sales and financial results.
- The Company entered into a ten-year lease for approximately 43,100 square feet of new executive, administrative and manufacturing space. Lease payments begin no earlier than January 1, 2022, and the initial right-of-use asset and lease liability were $5.9 million. Future undiscounted operating lease payments totaled approximately $10.0 million.
- The CEO Performance Award covers up to 13 million shares tied to market-capitalization milestones through 2030. The Company recognized $4.3 million of related stock-based compensation during the first nine months of 2021 and reported approximately $53.1 million of remaining unrecognized expense, assuming continued service.
- The award could materially dilute stockholders, increase GAAP losses regardless of milestone achievement, and potentially discourage a change in control.
- The Company agreed to pay $675,000 in attorneys’ fees and expenses relating to a shareholder class-action matter concerning disclosures about the CEO Performance Award. Management stated that ordinary-course litigation is not expected to have a material adverse effect.
- Series A preferred stock had a $1.0 million annual cumulative dividend obligation based on its stated value, although no cash dividends had been declared or paid. The remaining warrants issued with the Series A preferred stock expired September 29, 2021.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether system placements and procedure volumes continue to recover after COVID-19 disruptions and hospital staffing constraints.
- The timing and profitability of the approximately $6.5 million of remaining system-contract performance obligations.
- The effect of product mix and system margins on consolidated gross margin.
- Future cash burn and liquidity needs given continued operating losses, facility-related commitments and ongoing capital requirements.
- The magnitude and timing of stock-based compensation and potential dilution from the CEO Performance Award, convertible preferred stock, options and restricted stock units.
- The status, occupancy timing and total cost of the new St. Louis facility and related letters of credit.
- Supply-chain continuity, strategic technology relationships, regulatory clearances and the potential impact of future COVID-19 waves.