IRadimed Corporation — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; comparative periods ended June 30, 2015. The interim statements are unaudited. IRadimed develops, manufactures and sells MRI-compatible IV infusion pump systems, disposable IV sets and related services.
Financial performance
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $9.87 million | $7.61 million | $18.83 million | $14.60 million |
| Gross profit / margin | $8.13 million / 82.4% | $6.19 million / 81.3% | $15.39 million / 81.7% | $11.85 million / 81.2% |
| Operating income / margin | $3.34 million / 33.8% | $2.69 million / 35.4% | $6.82 million / 36.2% | $4.96 million / 34.0% |
| Net income | $2.23 million | $1.77 million | $4.51 million | $3.26 million |
| Diluted EPS | $0.19 | $0.15 | $0.37 | $0.27 |
| Operating cash flow | — | $3.76 million | $2.74 million |
Revenue increased 29.7% in Q2 and 29.0% in the first half. In Q2, device revenue was $8.20 million and disposable-set and service revenue was $1.67 million. The company recognized revenue on 262 pumps versus 220 in Q2 2015; average system selling price was approximately $31,000 versus $29,000. U.S. revenue grew 24.9% in Q2, while international revenue grew 113.3% from a smaller base.
Q2 gross margin improved, but operating margin declined as operating expenses grew faster than revenue. General and administrative expense rose to $3.09 million from $1.99 million, primarily reflecting increased stock-based compensation, payroll and GPO fees. Q2 net income margin was 22.6% versus 23.3%. For the first half, operating and net margins improved year over year.
Liquidity, capital and balance sheet
- At June 30, cash and cash equivalents were $12.07 million and investments were $8.08 million, totaling approximately $20.15 million, compared with $26.97 million at December 31, 2015.
- Working capital was $26.8 million, down from $31.1 million; stockholders’ equity was $28.47 million, down from $31.93 million.
- The balance sheet reports no borrowings or debt. Total liabilities were $3.88 million, including $1.44 million of deferred revenue.
- Operating cash flow was $3.76 million. Investing activities used $1.45 million, including $0.57 million capitalized intangible assets and $0.42 million property and equipment purchases. Financing activities used $9.61 million, primarily for share repurchases.
- The company spent $9.97 million to repurchase 569,213 shares under a program authorized for up to $10 million. Cash declined by $7.30 million during the first half.
- Management stated that cash and expected operating cash generation should fund operations for at least 12 months; it did not anticipate needing additional capital.
Changes, outlook and notable items
- Q2 stock-based compensation was $1.20 million, including approximately $867,000 of additional expense after the board modified the former chairman’s awards to allow continued vesting. First-half stock-based compensation was $1.60 million versus $0.58 million a year earlier.
- Management expected continued revenue growth for the rest of 2016, supported by expansion of the U.S. sales force, broader hospital penetration and a planned patient vital signs monitor launch in the second half. No quantified revenue or earnings guidance was provided.
- Management expected 2016 operating expenses to increase due to headcount, stock compensation, monitor-launch costs and depreciation from capital expenditures. Research and development expense declined partly because certain monitor software costs were capitalized.
- On June 2, 2016, the FDA reinstated the company’s 510(k) submission after an appeal and allowed another 180 days for specified changes to pump messages. The FDA stated that additional human-factors testing was not required. This was not a final clearance, and the company said the Warning Letter and 510(k) review remained unresolved.
- The filing also reports a July 2016 FDA inspection that resulted in a Form 483 identifying three observations. The company’s principal product line remains a key concentration risk; regulatory action could restrict sales or require corrective action.
- Other disclosed risks include reliance on single-source suppliers, including the pump’s ultrasonic motor supplier; operation from one Florida facility; dependence on GPO and international distributor relationships; and a related-party lease of the headquarters and manufacturing facility from an entity controlled by the CEO.
- The prior shareholder class action was dismissed in full, and the appeal was dismissed with prejudice in October 2015. The company reported no material off-balance-sheet arrangements.
Key facts for investors to verify
- Progress and timing of the FDA 510(k) review, required labeling changes, and resolution of the Warning Letter and July 2016 Form 483 observations.
- Whether revenue growth and the planned second-half 2016 monitor launch materialized, and the related regulatory and commercialization costs.
- The sustainability of gross margins and earnings given rising G&A costs and the unusual former-chairman award modification expense.
- Cash generation and liquidity after the near-completion of the $10 million repurchase authorization, alongside working-capital needs and capital spending.
- Supply continuity for critical single-source components and the terms and governance of the CEO-affiliated facility lease.