IRadimed Corporation — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2018; filed November 7, 2018. IRadimed develops, manufactures and sells MRI-compatible medical devices, accessories, disposables and services. Its principal products include MRI-compatible IV infusion pumps and patient vital-signs monitors.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $7.61 million | $5.69 million | $22.10 million | $16.38 million |
| Gross profit / margin | $5.79 million / 76.0% | $4.38 million / 77.0% | $16.87 million / 76.3% | $12.45 million / 76.0% |
| Operating income / margin | $1.45 million / 19.0% | $0.20 million / 3.4% | $4.21 million / 19.1% | $0.29 million / 1.7% |
| Net income | $2.40 million | $0.19 million | $4.60 million | $0.32 million |
| Diluted earnings per share | $0.20 | $0.02 | $0.38 | $0.03 |
| Operating cash flow | Not provided separately for Q3 | $3.83 million | $2.01 million |
At September 30, 2018, cash and cash equivalents were $23.70 million and investments were $7.49 million, totaling $31.19 million. Working capital was $37.9 million, stockholders’ equity $40.1 million, and total liabilities $6.72 million. The filing reports no debt balance. Management said available cash and expected operating cash generation should fund requirements for at least 12 months.
Nine-month investing cash flow was positive $0.44 million, including investment maturities exceeding purchases and $0.15 million of property and equipment purchases. Financing cash flow was positive $1.22 million, principally reflecting option and warrant exercises; the prior-year period included $1.82 million of share repurchases. Cash rose to $23.70 million from $18.21 million at year-end 2017.
Material changes and operating drivers
- Q3 revenue increased 33.8% year over year; nine-month revenue increased 34.9%. U.S. revenue rose 21.6% in Q3 and international revenue rose 125.0%; international sales represented 19.9% of Q3 revenue versus 11.8% a year earlier.
- Q3 device revenue grew 43.6%, led by MRI-compatible vital-signs monitors, whose revenue rose to $1.82 million from $0.12 million. IV pump-system revenue declined 2.0% to $3.53 million. Disposables and services increased 12.0%.
- Q3 gross margin fell one percentage point, to 76.0%, primarily due to lower IV pump average selling prices, international sales mix and unfavorable materials and overhead adjustments. Nine-month gross margin improved slightly to 76.3%.
- Q3 operating income rose substantially as revenue growth and lower general and administrative expense more than offset increased sales and marketing costs. Nine-month sales and marketing expense increased 25.5%, while general and administrative and research and development expenses declined.
Outlook, commentary and risks
- Management expected revenue for the remainder of 2018 to increase versus the comparable 2017 period, citing global sales growth for the 3880 patient monitor and deeper penetration of the IV-pump market. It expected higher full-year 2018 operating expenses than in 2017, primarily due to sales and marketing. No specific numerical revenue or earnings guidance was provided.
- Q3 and nine-month 2018 earnings benefited from discrete tax benefits related to employee option and underwriters’ warrant exercises and sales. The Q3 tax benefit was $0.91 million; management stated such benefits were not likely to recur. The nine-month effective tax rate was negative 6.4%.
- The FDA Warning Letter regarding device software and quality-system matters remained open at September 30, 2018, although the FDA had cleared the MRidium 3860+ system, including DERS, in 2016 and the 2016 inspection found no further action necessary regarding the Warning Letter. A related customer Safety Alert also remained open.
- Key business risks include reliance on the MRidium infusion-pump franchise, medical-device regulation and potential FDA action, competition and adoption of the new monitor, single-source suppliers (including the pump’s ultrasonic motor), and dependence on one Florida manufacturing facility. International growth also increases exposure to distributor, regulatory and currency risks.
- The IRS was examining the 2016 tax year; the review was in early stages with no proposed adjustments. The company also disclosed a related-party lease for its headquarters and manufacturing facility from an entity controlled by its CEO; the lease term expires in May 2019 and provides for renewal options.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company adopted the revenue-recognition standard in 2018 without a material financial-statement impact and was assessing the effect of the new lease standard expected to be adopted in 2019.
Most important facts for investors to verify
- Whether monitor sales growth and international expansion continue, and whether introductory monitor pricing can transition to the higher prices management expects.
- How much reported earnings growth is attributable to recurring operations versus the nonrecurring tax benefits.
- The status and potential consequences of the open FDA Warning Letter and Safety Alert.
- Whether sales growth can support margins as sales and marketing spending rises, and whether the single-source motor supplier can meet future demand.
- The terms and related-party nature of the facility lease renewal, and the outcome of the IRS examination.