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Stereotaxis Inc. Reports Operating Results (10-Q)

November 06, 2009 | About:
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10qk

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Stereotaxis Inc. (STXS) filed Quarterly Report for the period ended 2009-09-30.

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 $171.8 million; its shares were traded at around $4.02 with and P/S ratio of 4.3.

Highlight of Business Operations:

Revenue. Revenue increased from $10.6 million for the three months ended September 30, 2008 to $13.3 million for the three months ended September 30, 2009, an increase of approximately 26%. Revenue from the sale of systems increased from $7.4 million to $8.7 million, an increase of approximately 18%, due to an increase in the average revenue realized per system on NIOBE and the number of systems on ODYSSEY and CINEMA. We recognized revenue on six NIOBE, seven ODYSSEY and two CINEMA Systems during the 2009 period, verses six NIOBE systems and four ODYSSEY systems during the 2008 period. Revenue from sales of disposable interventional devices, service and accessories increased to $4.6 million for the three months ended September 30, 2009 from $3.2

Cost of Revenue. Cost of revenue increased from $3.6 million for the three months ended September 30, 2008 to $4.3 million for the three months ended September 30, 2009, an increase of approximately 18%. Cost of revenue for systems sold increased from $3.1 million for the three months ended September 30, 2008 to $3.5 million for the three months ended September 30, 2009, an increase of approximately 12%, primarily due to the increase in the number of ODYSSEY and CINEMA systems sold in the most recent quarter. Cost of revenue for disposables, service and accessories increased to $0.8 million during the 2009 period from $0.5 million during the 2008 period. As a percentage of our total revenue, overall gross margin was approximately 68% for the three months ended September 30, 2009 compared to 65% during the same three month period of the prior year. Gross margin for disposables, service and accessories was essentially unchanged at 82% for the current quarter compared to 83% for the three months ended September 30, 2008.

Cost of Revenue. Cost of revenue increased from $10.3 million for the nine months ended September 30, 2008 to $12.4 million for the nine months ended September 30, 2009, an increase of approximately 21%. Cost of revenue for systems sold increased from $8.8 million for the nine months ended September 30, 2008 to $9.3 million for the nine months ended September 30, 2009, an increase of approximately 5% 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 $3.2 million during the 2009 reporting period from $1.4 million during the 2008 reporting period due to the costs associated with the increased volume of disposable devices sold and higher software costs associated with new generation software upgrades in 2009. As a percentage of our revenue, gross margin was approximately 67% during the 2009 reporting period compared to 64% during 2008 reporting period.

In December 2008, we agreed to amend our Note and Warrant Purchase Agreement with stockholders who are affiliates of two members of our board of directors (Lenders), pursuant to which the Lenders agreed to loan us up to an aggregate of $10 million on an unsecured basis. As amended, the commitment will expire on the earlier of March 31, 2010 or the date we receive at least $20 million of third party, non-bank financing. This facility may also be used by us to guarantee our loan commitments with our primary bank lender, through the same extended term. We have elected to use the facility to guarantee such loan commitments. In conjunction with the financing commitment, we issued warrants to purchase 1,582,280 shares of our common stock at an exercise price of $3.16 to the Lenders. The warrants were exercisable immediately upon grant and expire five years from the date of grant. In October 2009, we received from the Lenders an extension of their commitment to provide $10 million in either direct loans to us or loan guarantees to our primary bank lender through the earlier of March 31, 2011 or the date we receive at least $30 million of third party, non-bank financing, coincidental with the proposed maturity of the bank line of credit, as amended. We granted to the Lenders 664,064 warrants in exchange for their extension. The warrants are exercisable at $4.25 per share, beginning on March 1, 2010 and expiring on February 28, 2015.

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 September 30, 2009, we had $16.2 million outstanding under the revolving line of credit with current borrowing capacity of $19.2 million, including amounts already drawn. As such, we had the ability to borrow an additional $3.0 million under the revolving line of credit at September 30, 2009. As of September 30, 2009, we were in compliance with all covenants of the bank loan agreement. In October 2009, the Company received a commitment letter from its primary lender indicating the lenders commitment to extend the maturity of the current working capital line of credit from March 31, 2010 to March 31, 2011 and to increase the total availability under the line from $25 million to $30 million, retaining the $10 million sublimit for borrowings supported by guarantees from the Lenders.

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 September 30, 2009, approximately $18.0 million had been advanced by Biosense Webster to us pursuant to the amendment and $5.0 million of royalty amounts earned had been used to reduce the advances. Of the approximately $14.1 million owed to Biosense Webster, including accrued interest, $12.1 million has been classified as long term debt and $2.0 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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