IRADIMED CORPORATION — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. The interim financial statements are unaudited. IRADIMED develops, manufactures and sells MRI-compatible IV infusion pump systems, disposable tubing sets and related services.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $7.61 million | $4.70 million | $14.60 million | $8.26 million |
| Gross profit / margin | $6.19 million / 81.3% | $3.83 million / 81.5% | $11.85 million / 81.2% | $6.73 million / 81.5% |
| Operating income / margin | $2.69 million / 35.4% | $1.61 million / 34.3% | $4.96 million / 34.0% | $2.43 million / 29.5% |
| Net income | $1.77 million | $1.02 million | $3.26 million | $1.54 million |
| Diluted EPS | $0.15 | $0.11 | $0.27 | $0.17 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2.74 million | $2.25 million |
- Q2 revenue grew 61.9%; six-month revenue grew 76.8%. The company sold 220 pumps in Q2 versus 146, and 437 in the first half versus 292.
- U.S. revenue rose 70.7% in Q2 and 102.5% in the first half; international revenue fell 15.1% and 30.6%, respectively. Device sales led growth, with disposable sets and services also increasing.
- Cash and cash equivalents were $12.43 million at June 30, plus $7.91 million of investments, for $20.33 million combined. Working capital was $23.86 million and stockholders’ equity was $25.09 million.
- Total liabilities were $3.67 million, principally current operating liabilities and deferred revenue. The filing reports no borrowings or debt balance.
- Six-month cash flow from operations was $2.74 million; investing used $0.13 million and financing provided $0.36 million. Cash increased $2.97 million from year-end. Receivables increased $2.30 million on the balance sheet and were a significant operating cash outflow.
Changes versus comparable periods
- Growth was driven chiefly by U.S. pump-system sales: Q2 device revenue increased 58.0%, while first-half device revenue increased 73.8%. Average pump-system selling prices were approximately $29,000 in Q2 versus $28,000, and $28,000 for the first half versus $24,000.
- Gross margin remained broadly stable. Operating margin improved year over year, particularly for the first half, despite higher operating expenses.
- General and administrative, sales and marketing, and research and development expenses all increased. The company cited staffing, legal and professional fees, GPO fees, sales commissions, consulting and engineering, public-company costs, and other items; first-half G&A also included a $55,433 patent impairment.
- Effective tax rates decreased to 35.4% for Q2 and 35.5% for the first half, from 37.2% and 37.0%, respectively.
Outlook, risks and contingencies
- Management expected continued revenue growth for the remainder of 2015, focusing on working down backlog, expanding the U.S. direct sales force, and converting users of a former competitor’s pumps. The filing gives no numerical revenue or earnings guidance.
- Management expected 2015 operating expenses to rise due to headcount growth, the new headquarters, work addressing the FDA Warning Letter, higher legal and depreciation expenses, and public-company costs. Management believed available cash and operating cash generation would fund requirements for at least 12 months.
- The FDA Warning Letter concerns device-design validation and software quality, and the FDA’s view that software changes required new 510(k) submissions. Distribution of the identified products was halted in 2014, then resumed in the U.S. under FDA enforcement discretion, including the DERS option in January 2015. The 510(k) review and resolution of the Warning Letter remained ongoing; further restrictions, recalls or other regulatory actions could materially affect sales.
- The company depends on a single principal product family, a single Florida manufacturing facility, and certain single-source suppliers, including the ultrasonic motor supplier. Other key risks include long customer sales cycles, reliance on GPO and international distributor relationships, customer credit concentration, product liability and medical-device regulation.
- A securities class action was dismissed in full on May 26, 2015; the plaintiff appealed on June 22. The company recorded an insignificant accrual for the matter.
- The Winter Springs headquarters and manufacturing facility is leased from an entity controlled by CEO Roger Susi. The lease’s base rent is $32,583 per month, with $1.53 million of disclosed non-cancelable commitments at June 30, 2015.
- Interest-rate sensitivity analysis estimated that a 100-basis-point rate change would change investment fair value by approximately $116,000. Management described the effect of a 10% U.S. dollar move against the yen on net income as immaterial.
Important facts for investors to verify
- Progress and outcome of the FDA 510(k) review, Warning Letter remediation, and any conditions attached to continued distribution.
- Whether reported backlog converts to shipments and cash, especially given the sharp increase in accounts receivable and weaker international sales.
- Future pump volumes, average selling prices, recurring disposable-set and service revenue, and the sustainability of margins as expenses increase.
- Supplier capacity and continuity, particularly for the single-source motor, and resilience of the sole manufacturing facility.
- Appeal status and potential exposure from the securities litigation, as well as the terms and governance implications of the related-party facility lease.