Stereotaxis, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems, imaging and workflow solutions, disposable devices, accessories and related services for hospital interventional laboratories. This filing covers the quarter and six months ended June 30, 2021, filed August 12, 2021. The company had 74,507,581 common shares outstanding as of July 31, 2021.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $9.1 million, versus $5.3 million | $17.7 million, versus $11.1 million |
| Gross profit | $6.5 million, versus $4.3 million | $12.5 million, versus $9.1 million |
| Gross margin | 72%, versus 80% | 71%, versus 82% |
| Operating loss | $(3.4) million, versus $(1.9) million | $(4.9) million, versus $(4.0) million |
| Net loss | $(1.2) million, versus $(1.9) million | $(2.7) million, versus $(3.9) million |
| Loss attributable to common stockholders | $(1.5) million, versus $(2.3) million | $(3.4) million, versus $(4.6) million |
| Basic and diluted loss per share | $(0.02), versus $(0.03) | $(0.05), versus $(0.06) |
- Systems revenue was $2.7 million in the second quarter and $5.3 million year to date, compared with less than $0.1 million in each 2020 comparable period.
- Disposables, service and accessories revenue increased 20% year over year in the quarter to $6.1 million and 12% year to date to $11.9 million.
- Operating expenses increased 61% in the quarter to $9.9 million and 34% year to date to $17.5 million. The increases reflected higher research and development, sales and marketing, professional services and stock-based compensation costs.
- Six-month stock-based compensation expense was $4.2 million, including $2.5 million related to the CEO Performance Award.
- Cash flow used in operating activities was $0.3 million for the six months, compared with $3.3 million used in 2020. Investing cash flow was $(0.15) million, and financing cash flow was $0.4 million.
- Cash and cash equivalents were $42.1 million at June 30, 2021. Including restricted cash and the compensating cash arrangement, total cash resources were approximately $44.2 million. Working capital was $41.8 million.
- The company reported no debt at June 30, 2021. A $2.2 million Paycheck Protection Program loan was fully forgiven in June 2021, producing a $2.2 million gain on extinguishment of debt.
Material Changes Versus Prior Comparable Period
- Revenue increased 69% in the second quarter and approximately 59% for the first six months, primarily because of higher system sales and recovering procedure volumes.
- Gross margin declined because the increased contribution from systems carried a lower margin than the company’s recurring products and services. Disposables, service and accessories gross margin was 86% in the quarter and 85% year to date, compared with 87% and 88%, respectively.
- Operating losses widened despite higher gross profit because operating expenses grew faster than revenue. General and administrative expense increased approximately 150% in the quarter and 83% year to date, primarily due to the CEO Performance Award and professional fees.
- Net loss improved because of the PPP loan forgiveness gain, despite the higher operating loss.
- Deferred revenue increased to $9.9 million from $5.8 million at December 31, 2020, including $8.7 million of remaining transaction price related to system contracts expected to be recognized in future periods.
- Accounts receivable increased to $4.7 million from $3.5 million, and inventory increased to $4.1 million from $3.3 million.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide specific quantitative revenue, earnings or cash-flow guidance.
- Management stated that second-quarter procedure volumes were nearly 40% above the second quarter of 2020 and generally resumed normal business activities, although more deliberately than before the pandemic.
- Management expects periodic COVID-19-related disruptions to procedure volumes, service activities and system placements during 2021 and expects capital system orders may be delayed. Recovery is expected to vary by geography.
- COVID-19-related risks include hospital capital-spending reductions, delayed or canceled orders, fewer procedures, travel restrictions, supply-chain interruptions and potential customer payment delays. Manufacturing and supply chains had been minimally interrupted as of the filing date, but further disruption could materially affect results.
- The company depends on strategic technology and distribution relationships and on regulatory approvals and registrations in various markets.
- The February 2021 CEO Performance Award covers up to 13 million shares tied to market-capitalization milestones through 2030. The company recorded $2.5 million of related expense in the first six months and had approximately $54.9 million of unrecognized expense remaining, assuming continued service. The expense is recognized regardless of whether the milestones are achieved and could materially dilute shareholders.
- The company entered into a 10-year lease for approximately 43,100 square feet of new executive, administrative and manufacturing space, expected to commence in 2022. Minimum annual rent ranges from approximately $0.8 million in 2022 to $1.0 million in 2031.
- Letters of credit supported approximately $1.3 million of commitments and an additional lease-related letter of credit of approximately $1.8 million, initially funded at approximately $0.4 million.
- A shareholder class action concerning disclosures related to the CEO Performance Award was voluntarily dismissed after the company supplemented its proxy statement. The plaintiff reserved the right to seek attorneys’ fees and expense reimbursement; management did not expect ordinary-course claims to be material.
Important Facts for Investors to Verify
- Whether system placements and recurring procedure volumes continue to support revenue growth after the COVID-19 recovery period.
- Whether the lower overall gross margin persists as system revenue becomes a larger portion of the mix.
- The pace of operating expense growth, particularly CEO award compensation and other stock-based compensation.
- Cash burn, working-capital requirements and the timing of deferred-revenue recognition.
- The potential dilution from Series A and Series B convertible preferred stock, warrants, options, restricted stock units and the 13 million-share CEO Performance Award.
- Execution and cost commitments related to the new facility lease and associated letters of credit.
- Renewal and availability of strategic technology relationships, regulatory clearances and supply-chain capacity.