KORU Medical Systems, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filed August 9, 2023. KORU designs, manufactures, and sells portable infusion devices and related products, primarily for subcutaneous drug delivery. Revenue comes from domestic core, international core, and novel therapies, including clinical-trial products and engineering services.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $6.94 million | $6.55 million | $14.33 million | $12.79 million |
| Gross profit | $3.89 million | $3.35 million | $8.04 million | $6.97 million |
| Gross margin | 56.1% | 51.1% | 56.1% | 54.5% |
| Operating loss | $(3.22) million | $(3.61) million | $(6.28) million | $(6.74) million |
| Net loss | $(2.50) million | $(2.92) million | $(4.91) million | $(5.46) million |
| Basic and diluted loss per share | $(0.05) | $(0.07) | $(0.11) | $(0.12) |
Q2 revenue increased 5.9% year over year and first-half revenue increased 12.0%. Q2 domestic core revenue rose 7.8%, international core rose 17.4%, and novel therapies fell 28.0%. For the first half, domestic core rose 11.2%, international core rose 19.9%, and novel therapies rose 5.5%. Domestic core represented about 77% of first-half revenue.
Gross margin improved year over year in both periods, which management attributed mainly to manufacturing efficiencies; first-half NRE margin also benefited from a more profitable services mix. Q2 operating expenses were $7.11 million, including $5.30 million of SG&A and $1.60 million of R&D. First-half operating expenses were $14.32 million. R&D increased 28.9% in the first half, primarily reflecting compensation, stock compensation, and consulting for innovation work; SG&A declined 2.7%.
Cash, liquidity, and balance sheet
- Cash and cash equivalents were $11.72 million at June 30, 2023, down from $17.41 million at December 31, 2022. Cash included $10.4 million invested in U.S. Treasury bills maturing every 90 days.
- Six-month operating cash use was $4.81 million, versus $4.63 million in the prior-year period. Investing cash use was $0.39 million, compared with $1.93 million, mainly reflecting lower capital expenditures. Financing cash use was $0.48 million.
- Inventory was $5.28 million, down $1.13 million from year-end. Management expected further inventory reduction during the rest of 2023.
- Total assets were $36.00 million, total liabilities $7.89 million, and stockholders’ equity $28.10 million. No note payable remained at June 30. Operating and finance lease liabilities totaled $3.83 million and $0.44 million, respectively.
- A $3.5 million revolving credit line expired June 1, 2023; the company reported no borrowing on it during the first half. It repaid the $0.43 million insurance-premium financing note during the period. On July 25, it entered a new $0.6 million insurance-premium financing agreement at 9.5% APR, with payments through June 2024.
Management stated that cash on hand, operating cash flows, and available financing were expected to meet requirements for at least the 12 months following issuance of the report. It also said longer-term strategy execution may require additional debt or equity financing and that there is no assurance such financing will be available.
Outlook, commentary, and risks
- No specific revenue, earnings, or margin guidance was provided. Management cited growth in consumables and pumps, new accounts, prefilled-syringe adoption, and international market strength; it also noted a Q2 decline in U.S. prescriptions for subcutaneous immunoglobulin drugs.
- The company completed its transition of finished-goods needle and tubing-set manufacturing to Command Medical Products in March 2023. Management cited dual-source capability and expected cost improvements.
- KORU recorded income tax benefits of $0.60 million in Q2 and $1.18 million in the first half. It reported $5.1 million of net deferred tax assets and considered realization more likely than not, but said a future valuation allowance could materially affect results if sufficient taxable income is not generated.
- The company expected to receive an approximately $0.7 million Employee Retention Credit receivable before the end of 2023.
- Key risks cited include reliance on growth in the U.S. and Canadian subcutaneous immunoglobulin market, customer ordering patterns and prescription trends, supply and labor costs, inventory conversion, regulatory requirements, competition, reimbursement, R&D execution, and access to capital. Novel-therapy revenue can fluctuate with contract timing and is not expected to be consistent.
- Management reported no litigation believed material to financial condition, no long-lived-asset impairment through June 30, and effective disclosure controls. It cautioned that interim results are not necessarily indicative of full-year results.
Facts investors should verify
- Whether operating cash use moderates and cash remains sufficient, particularly if strategic investment or growth requires additional financing.
- Whether inventory continues to decline as planned and the expected manufacturing efficiencies are realized.
- Whether the ERC receivable is collected as expected and whether deferred tax assets remain realizable without a valuation allowance.
- Whether core growth—especially U.S. and Canadian SCIg demand—continues despite the reported Q2 prescription decline, and whether international growth persists.
- Whether novel-therapy pipeline activity and NRE work produce repeatable revenue, given the business’s timing variability.