IRadimed Corporation (NASDAQ: IRMD) — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited interim results. IRadimed develops and sells MRI-compatible medical devices, accessories, disposables and services, primarily to hospitals and acute care facilities.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $9.23 million | $7.38 million | $17.66 million | $14.48 million |
| Gross profit | $7.37 million | $5.67 million | $13.76 million | $11.08 million |
| Gross margin | 79.9% | 76.8% | 77.9% | 76.5% |
| Operating income | $2.38 million | $1.68 million | $3.89 million | $2.76 million |
| Net income | $2.09 million | $1.35 million | $3.93 million | $2.20 million |
| Diluted EPS | $0.17 | $0.11 | $0.32 | $0.18 |
- Q2 operating margin was 25.8% versus 22.7%; net margin was 22.6% versus 18.4%. For the six-month period, operating margin was 22.0% versus 19.1%, and net margin was 22.3% versus 15.2%.
- Six-month operating cash flow was $3.15 million, broadly unchanged from $3.11 million a year earlier. Investing activities provided $0.90 million, compared with $0.20 million used; financing activities provided $0.35 million.
- At June 30, cash and cash equivalents were $32.42 million, investments $5.38 million, and working capital $45.1 million. Total assets were $56.84 million and stockholders’ equity was $47.15 million. The balance sheet reports no borrowings or debt.
- Lease accounting adoption added a $3.07 million operating lease right-of-use asset and corresponding lease liability at June 30; the facility lease is with an entity controlled by the CEO.
Changes versus prior comparable periods
- Revenue rose 25.1% in Q2 and 21.9% for the first half. U.S. revenue grew 31.9% in Q2 and 25.0% for the first half; international growth was 1.2% and 9.1%, respectively. U.S. sales represented 82.0% of Q2 revenue versus 77.7% a year earlier.
- Device revenue increased 26.4% in Q2 and 24.9% for the first half. Q2 infusion-pump revenue grew 26.7% and patient-monitor revenue 25.6%; disposables and services rose 21.2%.
- Q2 gross margin improved 3.1 percentage points, which management attributed primarily to favorable overhead variances. Higher pump average selling prices also supported first-half margin improvement.
- Sales and marketing expense increased 45.1% in Q2 and 36.3% for the first half, mainly from higher commissions and payroll. General and administrative expense rose, while research and development expense declined.
- Effective tax rates were 14.9% for Q2 and 3.1% for the first half of 2019, versus 20.5% and 22.4% in 2018. Management cited stock-compensation tax benefits and the foreign-derived intangible income deduction, partly offset by state taxes.
Outlook, risks and notable items
- Management expected revenue for the remainder of 2019 to increase versus the same 2018 period, citing device, accessory, disposable and service sales, continued execution of its critical-care strategy, and sales-team growth. It expected higher full-year operating expenses, primarily from sales and marketing. No specific revenue or earnings guidance figures are provided in the filing text.
- European shipments of the 3880 patient vital signs monitor to markets requiring a CE Mark were suspended after a technical-file review identified a clinical-evaluation reporting issue. The company was pursuing recertification and expected to resume such shipments near the beginning of fiscal Q4 2019, but stated success was not assured. Its pump and tubing certificates were being transferred to a new notified body; renewed certificates were expected before the end of August 2019.
- The FDA Warning Letter concerning earlier infusion-pump software and quality-system matters remained open as of June 30, 2019, despite prior clearance and resumed U.S. distribution. The filing also says a related customer safety alert remained open.
- The company identifies dependence on the MRidium infusion-pump system and related consumables, single-source suppliers including the pump’s ultrasonic motor vendor, regulatory and product-liability exposure, and reliance on a single Florida manufacturing facility as material business risks.
- Cash, investments and operating cash generation were expected by management to fund requirements for at least 12 months. Purchase orders outstanding totaled $3.51 million and were not recorded as balance-sheet liabilities. The CEO-affiliated facility lease is a related-party arrangement.
Important facts for investors to verify
- Whether PCBC issued the renewed pump and tubing certificates and whether 3880 monitor CE recertification was completed on the expected timeline.
- Subsequent status of the FDA Warning Letter and the open safety alert, including any new regulatory actions or distribution restrictions.
- How revenue and profitability evolve given the substantial reliance on the infusion-pump franchise, U.S. sales growth, and the concentration of supply in single-source vendors.
- Whether operating cash flow keeps pace with earnings, particularly as accounts receivable and inventory increased during the first half.
- Terms and ongoing costs of the related-party facility lease and the company’s capacity to fund growth without external financing.