IRADIMED Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; unaudited. IRADIMED develops and sells MRI-compatible medical devices, disposables, and related services to hospitals and acute care facilities. The filing identifies one reportable segment.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $7.70 million | $9.96 million | $23.17 million | $27.63 million |
| Gross margin | 74.6% | 78.2% | 73.9% | 78.0% |
| Operating income (loss) | $0.78 million | $2.52 million | $(1.41) million | $6.41 million |
| Net income | $1.07 million | $2.45 million | $0.73 million | $6.39 million |
| Diluted EPS | $0.09 | $0.20 | $0.06 | $0.52 |
| Operating cash flow | Nine-month amount: $3.32 million | Prior-year nine-month amount: $6.28 million |
- At September 30, cash and cash equivalents were $47.55 million and investments were $2.32 million. Working capital was $58.1 million; stockholders’ equity was $60.72 million.
- No borrowings are reported on the balance sheet. Liabilities include $2.78 million of operating lease obligations, plus deferred revenue and other current liabilities.
- Nine-month net income included a $2.01 million income tax benefit despite a $1.28 million pretax loss. The reported effective tax rate was 157.1%, reflecting discrete tax items, including CARES Act net operating loss carrybacks.
Material changes and drivers
- Q3 revenue fell 22.7% year over year; nine-month revenue fell 16.1%. Management attributed business disruption and longer sales cycles to COVID-19 and hospital restrictions on access and spending.
- Device revenue declined 39.4% in Q3 and 31.4% for the nine-month period. MRI-compatible IV infusion pump revenue fell 54.8% in Q3 and 50.5% year to date. Disposables, service, and other revenue rose 29.6% in Q3 and 27.0% year to date.
- Q3 U.S. revenue declined 21.9%; international revenue declined 26.6%. For the nine months, U.S. revenue declined 23.9%, while international revenue increased 21.9%.
- Gross margin declined, which management linked to unfavorable overhead variances and, year to date, a larger international revenue mix, partly offset by favorable inventory cost variances.
- Nine-month general and administrative expense increased 34.5% to $10.06 million. This included $3.2 million of costs related to the former CEO, including $2.7 million related to his separation. Nine-month stock-based compensation rose to $3.64 million from $1.31 million.
- Operating cash flow decreased to $3.32 million from $6.28 million. The company reported a $2.34 million cash outflow from prepaid income taxes among working-capital movements.
Outlook, risks, and contingencies
- IRADIMED withdrew its 2020 financial guidance on April 7, 2020 because of COVID-19 uncertainties and provided no replacement guidance in this filing.
- Management said cash, investments, and expected operating cash generation should cover ongoing requirements for at least 12 months; it did not anticipate needing additional capital.
- Risks include prolonged COVID-19 effects on hospital demand, selling access, customer collections, supply chains, manufacturing, and distribution. The company also cites regulatory and FDA risks, reliance on a limited product range, competition, and dependence on key customers and suppliers.
- The company reported no material known legal proceedings and no material off-balance-sheet arrangements. Purchase orders for goods or services totaled $2.60 million, with no related amounts recognized on the balance sheet.
- The headquarters and manufacturing facility lease is with an entity controlled by the CEO and chairman; base rent was $34,133 monthly, subject to annual CPI adjustment. Management stated disclosure controls were effective.
Important facts for investors to verify
- Whether device orders, particularly IV infusion pump sales, recover as hospital access and capital spending normalize.
- Whether growth in disposables and service can offset weaker device placements and sustain recurring revenue.
- The composition and future effects of CEO separation costs, elevated stock-based compensation, and other operating expenses.
- The sustainability of cash generation and liquidity, including the effect of tax refunds or carrybacks and working-capital movements.
- COVID-19-related demand, collection, supply-chain, and operational exposures, as well as the related-party lease terms.