IRadimed Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Comparisons are with Q1 2018 unless otherwise noted. IRadimed develops and sells MRI-compatible medical devices, accessories, disposables, and services, primarily to hospitals and acute-care facilities.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $8.44 million | $7.11 million | +18.7% |
| Gross profit / margin | $6.39 million / 75.7% | $5.42 million / 76.2% | Profit +18.0%; margin down 0.5 percentage points |
| Operating expenses | $4.88 million | $4.33 million | +12.6% |
| Operating income / margin | $1.51 million / 17.9% | $1.09 million / 15.3% | Income +39.2% |
| Net income | $1.85 million | $0.84 million | +119.4% |
| Diluted EPS | $0.15 | $0.07 | Up $0.08 |
| Operating cash flow | $0.67 million | $1.58 million | Down $0.92 million |
Device revenue rose 23.4% to $5.96 million, led by patient-monitoring systems (+46.7%) and infusion pumps (+15.6%). Disposables and services increased 5.0%. U.S. revenue grew 18.3% and international revenue grew 20.6%. Gross margin slipped mainly due to unfavorable inventory-costing adjustments, partly offset by higher device selling prices. Sales and marketing expense rose 28.2%, primarily from higher headcount and commissions; general and administrative expense rose 4.7%, while research and development expense declined.
Net income benefited from an income-tax benefit of $239,146, versus tax expense of $286,198 in Q1 2018. The company attributed the 2019 benefit primarily to discrete stock-based compensation tax benefits, partly offset by state tax expense; the effective tax rate was negative 14.9%.
At March 31, 2019, cash and cash equivalents were $29.68 million and investments were $5.75 million, totaling $35.43 million; working capital was $42.43 million and stockholders’ equity was $44.65 million. Total assets were $54.41 million and total liabilities were $9.77 million. The balance sheet reports operating lease liabilities but no borrowings. Cash increased $1.66 million during the quarter. Operating cash flow fell despite higher earnings, mainly because of lower cash inflows from accounts receivable. Management said available cash and expected operating cash generation should fund requirements for at least 12 months.
Material developments, outlook, and risks
- Outlook: Management expected revenue for the remainder of 2019 to exceed the comparable 2018 period, citing device and related-product sales, execution of its critical-care strategy, and sales-team growth. It expected higher full-year 2019 operating expenses, primarily from sales and marketing. No numerical full-year guidance was provided.
- European certification: In January 2019, the notified body identified a technical non-conformity in clinical evaluation reporting for the 3880 patient monitor. IRadimed suspended shipments to markets requiring a CE Mark. The temporary EC Certificate excluding the monitor ran through July 27, 2019; management said remediation was underway but could not assure success.
- FDA matters: The FDA Warning Letter concerning earlier infusion-pump software and quality-system issues remained open as of March 31, 2019, although the 3860+ pump had received 510(k) clearance in 2016 and the FDA’s 2016 inspection found no further action necessary on the Warning Letter findings. A separate 2016 Safety Alert also remained open.
- Concentration and operations: Revenue and profitability remained significantly dependent on the MRidium infusion-pump system and associated disposables and services. The company identified a single-source supplier for the pump’s ultrasonic motor and operates manufacturing and storage at one Florida facility. One domestic customer represented approximately 16.2% of accounts receivable.
- Lease and related party: The company adopted lease accounting on January 1, 2019, recognizing a right-of-use asset and lease liability. Its principal facility is leased from an entity controlled by CEO Roger Susi; the lease is expected to renew for two five-year terms. The present value of the lease liability was $3.13 million at quarter-end.
- Other items: Purchase orders for goods and services totaled $2.92 million and were not recorded as liabilities. Management reported no material known legal proceedings and no material off-balance-sheet arrangements. A March 2019 amendment to the supply agreement with Fukoku Co., Ltd. was filed with certain information omitted as competitively harmful.
Important facts for investors to verify
- Progress and outcomes of the 3880 monitor’s CE-mark remediation, including any effect on international shipments after the temporary certificate deadline.
- Any FDA follow-up on the still-open Warning Letter and Safety Alert, and whether additional regulatory actions or product restrictions arise.
- Whether revenue growth continues across pumps, monitors, and recurring disposables and services, and whether gross margin stabilizes.
- Whether receivables convert to cash and operating cash flow recovers; assess customer concentration and the quarter’s working-capital movements.
- Exposure to the single-source motor supplier and the related-party facility lease, including future renewals and costs.
- The extent to which Q1 net income growth reflects recurring operations versus the discrete tax benefit.