IRadimed Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Interim financial statements are unaudited. IRadimed develops and sells MRI-compatible medical devices, accessories and services, principally its MRidium IV infusion pump system.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $5.69 million | $7.67 million | $16.38 million | $26.51 million |
| Gross profit / margin | $4.38 million / 77.0% | $6.27 million / 81.7% | $12.45 million / 76.0% | $21.66 million / 81.7% |
| Operating income | $0.20 million | $2.59 million | $0.29 million | $9.41 million |
| Net income | $0.19 million | $1.56 million | $0.32 million | $6.07 million |
| Diluted EPS | $0.02 | $0.13 | $0.03 | $0.50 |
- Revenue fell 25.8% in Q3 and 38.2% for the nine-month period. Pump-system revenue fell 38.8% and 53.6%, respectively; the company recognized revenue on 103 pumps in Q3 versus 184 a year earlier, and 282 in nine months versus 709.
- Disposable IV sets and services increased 18.3% in Q3 and 11.6% in nine months, partially offsetting lower device sales. Pump-system average selling price rose to approximately $35,000 in both 2017 periods, compared with $32,000 in Q3 2016 and $30,100 for the 2016 nine-month period.
- Gross margin declined, which management attributed to lower production and unfavorable overhead absorption, higher depreciation and amortization, and a greater international-sales mix. Q3 general and administrative expense included a $380,452 one-time charge for modifying underwriters’ warrants.
- Operating cash flow was $2.01 million for the first nine months, versus $7.18 million in 2016. Investing activities provided $0.49 million; financing used $1.81 million, mainly for treasury-stock purchases. Cash increased $0.69 million to $18.41 million.
Financial position and liquidity
- At September 30, 2017, cash and cash equivalents were $18.41 million and investments were $6.80 million, totaling $25.21 million; working capital was $29.6 million and stockholders’ equity was $32.14 million.
- Total liabilities were $5.78 million, primarily deferred revenue and current operating liabilities. The balance sheet reports no borrowings or debt.
- Management said cash, investments and expected operating cash generation should fund requirements for at least 12 months; it did not anticipate needing additional capital.
Outlook, risks and other material matters
- Management expected revenue in the remainder of 2017 to increase versus the comparable 2016 period, citing efforts to win first-time pump adopters and expand sales into hospital critical-care departments. It expected higher full-year operating expenses than in 2016, including increased sales and marketing, regulatory and R&D costs and the warrant-modification charge.
- The FDA had cleared the MRidium 3860+ system, including DERS software, in December 2016, but the 2014 FDA Warning Letter remained open at quarter-end. Separately, the company announced on October 26, 2017 that its 3880 MRI-compatible patient monitor had received FDA 510(k) clearance; management had anticipated U.S. shipments in Q4 if clearance was obtained.
- Key risks include dependence on the MRidium pump and related consumables, extended sales cycles, regulatory action, reliance on single-source suppliers—including the pump’s ultrasonic motor supplier—and competition. The company also manufactures and stores products at one Florida facility.
- The company leases its headquarters and manufacturing facility from an entity controlled by its CEO; the lease expires in May 2019, subject to renewal options. The company reported approximately $2.4 million of purchase orders outstanding at quarter-end.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pump-system orders and recognized shipments recover, given the steep year-over-year decline and management’s sales-cycle commentary.
- Whether the open FDA Warning Letter is closed and whether the 3880 monitor’s clearance converts into meaningful sales.
- Whether gross margins and operating cash flow stabilize as production and revenue change.
- Exposure to the single-source motor supplier, the related-party facility lease, and continued share repurchases relative to liquidity needs.
- The timing and financial effect of adopting the new revenue-recognition standard; management’s preliminary assessment was that the impact would not be material.