STXS - Sizing Up Stereotaxis

2023-09-05 09:47:27 ET

Summary

• Stereotaxis, Inc. is a medical device company that produces robotic systems for interventional procedures.
• While the stock is down sharply from its mid-2021 highs, the company has some important potential milestones on the medium-term horizon.
• The company expects to end FY2023 with $22-24 million in cash and marketable securities and aims to reach profitability without additional financing.
• An investment analysis follows in the paragraphs below.

He who is brave is free ”? Seneca

Today, we put Stereotaxis, Inc. ( STXS ) in the spotlight for the first time. The company is in the fast-growing robotic surgery space. The stock is down sharply from its all-time highs in mid-2021 but seems to have stabilized recently. The company also has some important potential milestones on horizon. Time to buy the dip? An analysis follows below.

Company Overview:

Stereotaxis, Inc. is a medical device concern based out of Saint Louis, MO. The company produces robotic systems, instruments, and information systems for the interventional. The company bills itself as a leader in the surgical robotics for minimally invasive endovascular intervention field. Its primary product is the Genesis RMN system. These instruments enable physicians to complete complex interventional procedures by providing image-guided delivery of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites. The stock currently trades for just under two bucks a share and the sport an approximate $135 million market capitalization.

The company makes money in two ways. The first is by selling systems like Genesis RMN. This robotic magnetic navigation device was introduced in 2020 and approved for the robotic navigation of magnetic ablation catheters to treat heart rhythm disorders. Genesis costs $1.7 million with another $1 million to $2 million needed for construction and implementation of the system. The second is via recurring fees via royalties on catheters that these devices use. Currently these come from Biosense which is a division of Johnson & Johnson ( JNJ ). Stereotaxis gets approximately $300 per procedure on these consumables. Obviously, gross margins on its recurring sales are much, much higher than that on sale of its systems. In the last quarter reported, gross margins on systems revenues was just 18% compared to 79% for recurring sales.

Second Quarter Results:

On August 10th, Stereotaxis posted its second quarter numbers . The company had a non-GAAP loss of seven cents a share, a penny better than expected. Revenues rose 28% on a year-over-year basis to just under $7.9 million, which was $1 million north of the consensus.

System revenue came in at $3.3 million, reflection the delivery of two Genesis systems and compares favorably to the $600,000 of system sales in 2Q2022. Recurring sales dropped to $4.6 million from $5.6 million in the same period a year ago reflecting impacted by the absence of catheter royalties received in the prior year and by catheter production shortages. The company will no longer receive royalties from J&J going forward. The impacts to procedure volumes due to shortages have since been resolved. The company ended the quarter with $16 million in order backlog for its system.

During the quarter, Stereotaxis announced a strategic collaboration with Abbott ( ABT ) that will be focused on integrating Abbott's EnSite X mapping system with Stereotaxis' robotic technology. Management guided to double-digit growth in sales in FY2023 driven by revenue recognition of system backlog and new system orders. Leadership believe revenue growth will accelerate in the years ahead driven by new product launches.

The most important of which is the MAGIC Catheter which will allow easier control during procedures and more importantly allow Stereotaxis to capture $3,000 per procedure of revenue. The approval process for this new catheter has been delayed recently but seems on track now for approval in Europe in mid-to-late 2024 and in the United States sometime in 2025. The company is also planning to launch a self-shielding robotic system but this dependent on the approval of the MAGIC catheter.

Analyst Commentary & Balance Sheet:

Since second quarter results were posted, Craig-Hallum has reissued its Buy rating on STXS as has B. Riley Financial ($4.50 price target)

Approximately four percent of the outstanding float is currently held short. One insider bought just over $120,000 collectively in August via several transactions. That has been the only insider activity in the shares so far in 2023.

Management has guided they expect to end FY2023 with between $22 million and $24 million of cash and marketable securities on the balance sheet. Furthermore, they have states that ' This balance sheet allows the company to advance a transformative product ecosystem to market, fund its commercialization, and reach profitability without the need for additional financing '. Stereotaxis has no debt. Net loss for the second quarter was $5.3 million in line with 2Q2022. The company had a negative $2.9 million of free cash flow during the quarter it should be noted.

Verdict:

The current analyst firm consensus has the company losing 26 cents a share in FY2023 on just over $32 million in revenue. Analysts see losses being cut to 20 cents a share in FY2024 as sales rise to just south of $42 million.

Stereotaxis is an interesting story in a growing market and its balance sheet seems in decent shape. However, profitability is likely to be driven by the MAGIC catheter. Given delays in the approval process, I would like to see this new product be approved in Europe before making an investment in Stereotaxis.

Courage is the price that life exacts for granting peace .”? Amelia Earhart

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