IRadimed Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. IRadimed develops and sells MRI-compatible infusion pumps, patient vital-sign monitors, accessories, disposable IV sets and related services.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $5.16 million | $8.96 million |
| Gross profit / margin | $3.77 million / 73.1% | $7.26 million / 81.0% |
| Operating income (loss) | $(238,381) | $3.48 million |
| Net income (loss) | $(233,340) | $2.28 million |
| Diluted earnings (loss) per share | $(0.02) | $0.19 |
| Cash from (used in) operations | $(184,645) | $2.43 million |
- At March 31, cash and cash equivalents were $17.46 million and investments were $7.79 million; working capital was $30.1 million and stockholders’ equity was $32.0 million.
- Total liabilities were $5.39 million. The filing does not report interest-bearing debt.
- Cash decreased $257,230 during the quarter, ending at $17.46 million. Investing activities used $61,718 and financing activities used $10,867.
Changes versus the prior comparable period
- Revenue declined 42.4%. The company recognized revenue on 87 infusion pump systems versus 263 a year earlier. Pump-system average selling price increased to approximately $34,500 from $27,700.
- Infusion pump revenue fell 58.8% to $3.00 million. Monitor revenue was $389,702, including approximately $0.4 million of international monitor sales; disposable IV sets and services rose 6.1% to $1.77 million.
- U.S. revenue declined 45.2% to $4.32 million; international revenue declined 22.4% to $845,666. Devices revenue decreased 53.5% to $3.39 million.
- Gross margin fell 7.9 percentage points, which management attributed to lower sales leverage and a larger share of international sales. Operating expenses increased 6.3% to $4.01 million, including higher R&D expense; the company moved from operating profit to an operating loss.
- Operating cash flow changed from $2.43 million provided to $184,645 used, primarily reflecting the quarterly net loss and working-capital movements. Q1 2016 financing cash use included $5.51 million of treasury-stock purchases; there were no treasury-stock purchases in Q1 2017.
Outlook, risks and notable items
- Management expects revenue for the remainder of 2017 to decline versus 2016 as prior customer conversions mature and the company focuses on first-time adopters and broader hospital penetration. It expects full-year operating expenses to remain consistent with 2016.
- Management plans to expand international monitor sales and expected to begin U.S. shipments in Q4 2017 if FDA clearance is received by then. The filing gives no specific full-year revenue or earnings guidance.
- The FDA cleared the MRidium 3860+ infusion pump system, including its DERS software feature, in December 2016. The FDA Warning Letter remained open as of March 31, 2017; the company continued to pursue closure.
- Management said existing cash, investments and expected operating cash generation should fund requirements for at least 12 months. It reported no material off-balance-sheet arrangements and no material known legal matters.
- On April 27, 2017, after quarter-end, the board authorized repurchases of up to $8.0 million of common stock through April 28, 2018, funded from cash, investments and operating cash generation.
- Key risks include dependence on the infusion pump and disposable products, the open FDA Warning Letter and other regulatory requirements, extended sales cycles, reliance on distributors and group purchasing organizations, and single-source suppliers—including the pump’s ultrasonic motor supplier. The manufacturing and headquarters facility is leased from an entity controlled by the CEO.
- Adoption of ASU 2016-09 resulted in recognition of $74,625 in net stock-compensation tax deficiencies in Q1 tax expense. The reported effective tax rate was (11.7)% while the company recorded a pretax loss.
Important facts for investors to verify
- Whether pump-system orders and unit sales stabilize after the sharp year-over-year decline, and whether disposable and service revenue continues to grow.
- Progress toward closure of the FDA Warning Letter and any required follow-up actions, including the status of the monitor’s U.S. FDA clearance.
- Whether the company achieves its stated expense outlook and maintains liquidity if operating losses or negative operating cash flow continue.
- How much of the authorized $8.0 million repurchase program is used, and the resulting effect on cash available for operations and investment.
- Whether key suppliers, particularly the sole-source ultrasonic motor supplier, can meet production needs on acceptable terms.