IRADIMED Corporation — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. The interim financial statements are unaudited. IRADIMED develops and sells MRI-compatible infusion pumps, patient vital-sign monitors, accessories, disposables, and services.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $5.52 million | $9.87 million | $10.69 million | $18.83 million |
| Gross profit | $4.29 million | $8.13 million | $8.06 million | $15.39 million |
| Gross margin | 77.7% | 82.4% | 75.5% | 81.7% |
| Operating income | $328,000 | $3.34 million | $89,000 | $6.82 million |
| Net income | $357,000 | $2.23 million | $124,000 | $4.51 million |
| Diluted EPS | $0.03 | $0.19 | $0.01 | $0.37 |
- Q2 revenue fell 44.0%; six-month revenue fell 43.3%. The main driver was lower infusion pump system sales: 92 systems recognized in Q2 versus 262 a year earlier, and 179 in the first half versus 437.
- Q2 infusion pump average selling price rose to approximately $35,600 from $31,100, reflecting product mix and higher-priced options. Disposables and services revenue increased 10.4% in Q2 and 8.2% in the first half.
- Q2 U.S. revenue decreased 46.2% and international revenue decreased 22.1%. The new patient vital-sign monitor contributed $399,000 of Q2 revenue, all internationally; first-half monitor revenue was $789,000.
- Gross margin declined, which management attributed to lower production and unfavorable overhead absorption, inventory cost adjustments, higher depreciation and amortization, and a larger international share of revenue.
Cash, liquidity, and balance sheet
- At June 30, cash and cash equivalents were $16.80 million and investments were $7.02 million, totaling $23.82 million, versus $25.68 million at year-end 2016. Working capital was $29.35 million; stockholders’ equity was $31.30 million.
- Six-month operating cash flow was $107,000, down from $3.76 million. Investing activities provided $528,000; financing activities used $1.55 million, primarily for $1.55 million of treasury-stock purchases.
- The balance sheet reports no borrowings or debt. Current liabilities were $3.63 million; deferred revenue totaled $3.46 million, current and noncurrent.
- Management said available cash and expected operating cash generation should fund requirements for at least 12 months. It did not anticipate needing additional capital.
Outlook, material items, and risks
- Management expects revenue for the remainder of 2017 to decline versus 2016 as the prior replacement-driven pump sales tailwind fades. It plans to focus on first-time adopters and deeper hospital penetration. Full-year operating expenses are expected to be higher than 2016, including a one-time warrant-modification charge.
- Management planned to expand international sales of the 3880 patient monitor and said U.S. shipments were planned for Q4 2017, conditional on FDA clearance.
- The FDA had cleared the MRidium 3860+ pump system, including DERS software, in December 2016, but the FDA Warning Letter remained open at June 30, 2017. The company states its business remains substantially dependent on its MRidium pump and associated disposables.
- On July 17, 2017, the board amended IPO warrants, extending expiration to July 17, 2019 and changing the strike price to $10.05. The company expected a $380,452 Q3 2017 earnings charge; 181,600 warrants remained outstanding as of that date.
- Key risks include lengthy and unpredictable hospital sales cycles, reliance on a single-source ultrasonic motor and other suppliers, manufacturing at one Florida facility, regulatory and product-quality exposure, and the related-party lease of the facility from an entity controlled by the CEO. The company disclosed no known legal proceedings expected to materially affect its financial position or results.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pump orders and recognized system sales stabilize after the sharp year-over-year decline, and whether monitor sales meaningfully supplement them.
- Progress toward closure of the FDA Warning Letter and any required follow-up from FDA inspections or corrective actions.
- Actual 2017 revenue, operating expense, and U.S. monitor-clearance outcomes relative to management’s qualitative outlook.
- Cash generation and working-capital trends, including the effect of inventory, receivables, deferred revenue, and any further share repurchases.
- The expected Q3 warrant-modification charge and the terms and potential dilution associated with the remaining warrants.