IRadimed Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; interim financial statements are unaudited. IRadimed develops and sells MRI-compatible IV infusion pump systems, disposable sets and related services.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $6.99 million | $3.56 million |
| Gross profit / margin | $5.66 million / 81.0% | $2.90 million / 81.5% |
| Operating income / margin | $2.26 million / 32.4% | $0.82 million / 23.2% |
| Net income / diluted EPS | $1.49 million / $0.12 | $0.52 million / $0.06 |
| Operating cash flow | $1.06 million | $0.46 million |
- Revenue grew 96.5% year over year. U.S. revenue rose to $6.30 million from $2.45 million; international revenue declined to $0.69 million from $1.11 million.
- Device revenue was $5.89 million; disposable IV sets and services contributed $1.10 million. The company sold 217 pump systems versus 146 a year earlier; average system selling price was approximately $27,000 versus $20,700.
- Gross margin edged down 0.5 percentage points, primarily due to unfavorable inventory-cost changes. Net margin increased to 21.3% from 14.7%.
- Cash and cash equivalents were $10.77 million at March 31, 2015; investments were $7.93 million. Management reported combined cash and liquid investments of approximately $18.7 million, working capital of $21.9 million and stockholders’ equity of $23.0 million.
- Operating cash flow increased, but was below net income; cash was reduced by a $1.60 million increase in accounts receivable, partly offset by tax-related and deferred-revenue inflows. Cash increased $1.32 million during the quarter.
- No debt balance is reported on the balance sheet. The CEO’s interest-free note had been repaid in March 2014. Total liabilities were $3.04 million at quarter-end.
Changes, outlook and management commentary
- Management attributed growth mainly to pump-system sales and expanding U.S. sales activity. It expected continued revenue growth for the remainder of 2015, but provided no numerical revenue or earnings guidance.
- Management expected operating expenses to rise in 2015 due to hiring, the new headquarters, FDA-warning-letter remediation, higher legal and depreciation costs, and public-company expenses. It stated current cash and expected operating cash generation should fund requirements for at least 12 months.
- General and administrative expense increased 80% to $1.97 million, reflecting higher payroll, legal and professional fees, GPO fees, stock compensation, bad debt expense and a $55,433 patent impairment charge. Sales and marketing expense rose 43% to $1.09 million; R&D rose 53% to $342,301.
- FDA status remains a central uncertainty. Following the 2014 Warning Letter and U.S. distribution suspension, the company resumed distribution of the 3860+ system under FDA enforcement discretion in December 2014 and the DERS option in January 2015. Its 510(k) submission was under FDA review, and the company continued working to resolve the letter. The filing warns the FDA could require renewed shipment cessation or other enforcement actions.
- A putative securities class action concerning alleged nondisclosure of FDA compliance issues was in early litigation. The company disputed the allegations, intended to defend itself, and had not accrued a loss because it considered any loss not probable or estimable. A German trademark dispute was settled in March 2015; the company paid the previously accrued amount and may continue using its name and related marks in the EU.
- The company recorded $55,433 of impairment on patents associated with certain IV sets. It also disclosed a related-party lease for its headquarters and manufacturing facility from an entity controlled by its CEO: monthly base rent was $32,583, with lease commitments totaling $1.63 million at quarter-end.
- Other material risks include dependence on a single product family, single-source suppliers (including the pump’s ultrasonic motor), a single Florida manufacturing site, customer and distributor concentration, regulatory and product-liability exposure, and reliance on the founder/CEO. The company also disclosed interest-rate sensitivity: a 100-basis-point change could change investment fair value by approximately $135,000.
Most important facts for investors to verify
- Progress and outcome of the FDA 510(k) review and Warning Letter remediation, including the scope and conditions of continued U.S. distribution.
- Whether U.S. pump sales growth continues and international revenue recovers after its year-over-year decline.
- Accounts receivable quality and cash conversion, given the quarter’s large receivables increase and higher doubtful-account allowance.
- Operating-cost trajectory, including ongoing legal, compliance, public-company and related-party facility costs.
- Developments in the securities litigation and any resulting financial exposure.