IRadimed Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. IRadimed develops, manufactures and sells MRI-compatible medical devices, accessories, disposables and related services, principally for hospitals and acute-care facilities.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $8.68 million | $8.44 million; up 2.8% |
| Gross profit / gross margin | $6.46 million / 74.5% | $6.39 million / 75.7% |
| Operating income / margin | $0.74 million / 8.5% | $1.51 million / 17.9% |
| Net income | $1.77 million | $1.85 million |
| Diluted EPS | $0.14 | $0.15 |
| Net cash from operating activities | $1.20 million | $0.67 million |
Operating expenses rose to $5.73 million from $4.88 million, with increases in general and administrative, sales and marketing, and research and development costs. The reported income tax benefit was $0.93 million, versus $0.24 million in Q1 2019; management attributed the 2020 benefit largely to stock-based compensation, state tax benefits and CARES Act net operating loss carryback provisions.
At March 31, 2020, cash and cash equivalents were $44.64 million and investments were $2.78 million; management reported combined cash, cash equivalents and investments of $47.4 million. Working capital was $55.6 million, and stockholders’ equity was $58.1 million. The balance sheet reports no borrowings. Cash increased $1.15 million during the quarter. Investing activities used $0.23 million and financing activities provided $0.19 million.
Changes versus the prior comparable period
- U.S. revenue declined 10.6% to $6.32 million, while international revenue rose 72.7% to $2.36 million.
- Device revenue fell 6.8% to $5.55 million. IV infusion pump system revenue declined 36.4% to $2.66 million, while patient vital signs monitoring system revenue increased 63.5% to $2.89 million.
- Disposables, services and other revenue increased 30.7% to $2.66 million. Extended maintenance contract revenue increased 4.5% to $0.46 million.
- Gross margin decreased 1.2 percentage points, which management attributed primarily to a higher international share of revenue. Higher operating expenses reduced operating income substantially; net income declined about 4%.
- Operating cash flow increased from $0.67 million to $1.20 million. Cash and investments rose from $46.3 million at year-end 2019 to $47.4 million at quarter-end.
Outlook, risks and other notable items
- COVID-19: IRadimed withdrew its 2020 financial guidance because of pandemic uncertainty. Management reported accelerating declines in customer orders as hospitals deferred purchases and restricted access to non-healthcare workers. The company warned of potential revenue declines, payment delays, supply-chain disruption and pressure on hospital capital spending.
- Liquidity outlook: Management believed available cash and expected operating cash generation would cover operating requirements for at least the next 12 months and did not anticipate needing additional capital.
- Concentration and operations: Revenue and profitability depend significantly on a limited number of products. The company identified single-source suppliers, including its ultrasonic motor supplier, and operates manufacturing and storage at one Florida facility. The facility is leased from an entity controlled by Chairman and Chief Technology Officer Roger Susi.
- Commitments and legal matters: Purchase orders totaled $3.63 million at quarter-end and were not recorded as balance-sheet liabilities. The filing describes ordinary-course legal claims and states that currently known matters were not expected to have a material effect. No material off-balance-sheet arrangements were reported.
- Controls: Management concluded disclosure controls and procedures were effective at a reasonable assurance level; no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether deferred hospital orders and restricted sales access continued to affect revenue after Q1, and whether guidance remained suspended.
- Whether international growth, particularly in Asia-Pacific markets, offset domestic weakness and how the product mix affected margins and average selling prices.
- Whether the unusually large income tax benefit, including the CARES Act carryback, is nonrecurring and how it affects comparisons of reported earnings.
- Whether supply availability, customer collections, and the single-site manufacturing operation remained reliable during the pandemic.
- The terms and ongoing economics of the related-party facility lease, and the status of purchase commitments and any material legal or regulatory developments.