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Stereotaxis Inc. Reports Operating Results (10-Q)

August 07, 2009 | About:
Shai Dardashti

Stereotaxis Inc. (STXS) filed Quarterly Report for the period ended 2009-06-30.

Stereotaxis designs manufactures and markets an advanced cardiology instrument control system for use in a hospital\'s interventional surgical suite to enhance the treatment of coronary artery disease and arrhythmias. The Stereotaxis System is designed to allow physicians to navigate catheters guidewires and stent delivery devices through the blood vessels and chambers of the heart to treatment sites. Stereotaxis Inc. has a market cap of $183.5 million; its shares were traded at around $4.33 with and P/S ratio of 4.5.

Highlight of Business Operations:

Revenue. Revenue increased from $10.7 million for the three months ended June 30, 2008 to $12.6 million for the three months ended June 30, 2009, an increase of approximately 19%. Revenue from the sale of systems increased from $7.9 million to $8.2 million, an increase of approximately 3%, due to an increase in the average revenue realized per system. We recognized revenue on eight NIOBE and two ODYSSEY systems during the 2009 period and eight NIOBE systems and four ODYSSEY systems during the 2008 period. Revenue from sales of disposable interventional devices, service and accessories increased to $4.5 million for the three months ended June 30, 2009 from $2.8 million for the three months ended June 30, 2008, an increase of approximately 62%. The increase was attributable to the increased base of installed systems, the resulting disposable sales and related royalties as well as favorable pricing on a next generation proprietary disposable.

Cost of Revenue. Cost of revenue increased from $4.2 million for the three months ended June 30, 2008 to $4.7 million for the three months ended June 30, 2009, an increase of approximately 12%. Cost of revenue for systems sold decreased from $3.9 million for the three months ended June 30, 2008 to $3.2 million for the three months ended June 30, 2009, a decrease of approximately 17%, primarily due to the decrease in the average cost of Niobe systems sold in the 2009 period. Cost of revenue for disposables, service and accessories increased to $1.4 million during the 2009 period from $0.3 million during the 2008 period. As a percentage of our total revenue, overall gross margin was approximately 63% for the three months ended June 30, 2009 compared to 61% during the same three month period of the prior year. Gross margin for disposables, service and accessories declined from 89% for the three months ended June 30, 2008 to 68% for the three months ended June 30, 2009 primarily related to higher than normal maintenance costs related to a first generation Niobe system incurred during the quarter and costs associated with software upgrades.

Revenue. Revenue increased from $17.7 million for the six months ended June 30, 2008 to $23.8 million for the six months ended June 30, 2009, an increase of approximately 34%. Revenue from the sale of systems increased from $12.3 million to $15.0 million, an increase of approximately 22%, due to an increase in the number of NIOBE systems delivered from twelve to thirteen and an increase in the average revenue realized per system. In addition, we recognized revenue on seven ODYSSEY systems during the 2009 period as contrasted with six ODYSSEY systems installed during the 2008 period. Revenue from sales of disposable interventional devices, service and accessories increased to $8.8 million for the six months ended June 30, 2009 from $5.4 million for the six months ended June 30, 2008, an increase of approximately 62%, because of an increased base of installed systems, the resulting disposable sales and related royalties as well as favorable pricing on a next generation proprietary disposable.

Cost of Revenue. Cost of revenue increased from $6.6 million for the six months ended June 30, 2008 to $8.1 million for the six months ended June 30, 2009, an increase of approximately 23%. Cost of revenue for systems sold increased from $5.7 million for the six months ended June 30, 2008 to $5.8 million for the six months ended June 30, 2009, an increase of approximately 1% primarily due to the increase in number of systems delivered offset by a decrease in the average cost of NIOBE systems delivered in the 2009 period. Cost of revenue for disposables, service and accessories increased to $2.4 million during the 2009 reporting period from $0.9 million during the 2008 reporting period due to the costs associated with the increased volume of revenue and higher than normal maintenance costs related to a first generation NIOBE system incurred during the period. As a percentage of our revenue, gross margin was approximately 66% during the 2009 reporting period compared to 63% during 2008 reporting period.

In March 2009, we entered into an agreement with Silicon Valley Bank, our primary lending bank, to amend our revolving line of credit to change the total availability under the line to $25 million, with up to $10 million available under the line supported by the guarantees described above and to extend the term of the agreement to March 31, 2010. Under the revised facility, we are required to maintain a minimum “tangible net worth” as defined in the agreement. Interest on the facility accrues at the rate of prime plus 0.5%, subject to a floor of 6%, for the amount under guarantee, and prime plus 1.75%, subject to a floor of 7%, for the remaining amounts. As of June 30, 2009, we had $13.2 million outstanding under the revolving line of credit with current borrowing capacity of $19.8 million, including amounts already drawn. As such, we had the ability to borrow an additional $6.6 million under the revolving line of credit at June 30, 2009. As of June 30, 2009, we were in compliance with all covenants of the bank loan agreement.

In July 2008, we amended our existing agreements with Biosense Webster, Inc. Pursuant to the amendment, Biosense Webster agreed to advance us $10.0 million against royalty amounts that were owed at the time the amendment was executed or would be owed in the future to us from Biosense Webster. We also agreed that an aggregate of up to $8.0 million of certain agreed upon research and development expenses that were owed at the time the amendment was executed or may be owed in the future by us to Biosense Webster would be deferred and will be due, together with any unrecouped portion of the $10.0 million royalty advance, on the Final Payment Date, as defined in the amendment, but in no event later than December 31, 2011. We have the right to prepay any amounts due pursuant to the amendment at any time without penalty. As of June 30, 2009, approximately $18.0 million had been advanced by Biosense Webster to us pursuant to the amendment and $4.3 million of royalty amounts earned had been used to reduce the advances. Of the approximately $14.5 million owed to Biosense Webster, including accrued interest, $13.5 million has been classified as long term debt on our balance sheet and $1.0 million has been classified as short-term debt on our balance sheet. Commencing on May 15, 2010 we are required to make quarterly payments to Biosense Webster equal to the difference between certain aggregate royalty payments recouped by Biosense Webster from us in such quarter and $1.0 million, until the earlier of (1) the date all funds owed by us to Biosense Webster pursuant to the amendment are fully repaid or (2) the Final Payment Date. Interest on the outstanding and unrecouped amounts of the royalty advance and deferred research and development expenses will accrue at an interest rate of the prime rate plus 0.75%. Outstanding royalty advances and deferred research and development expenses and accrued interest thereon will be recouped by Biosense Webster from time to time by deductions from royalty amounts otherwise payable to us.

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