IRadimed Corporation (IRMD) — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Although the request refers to 2018 Q4, this filing is an annual report; it also provides unaudited fourth-quarter results. Filed March 7, 2019.
Business context
IRadimed develops and sells MRI-compatible medical devices, principally its MRidium IV infusion pump system and its 3880 patient vital-signs monitor, along with disposables, accessories and services. It sells directly in the U.S. and through independent distributors internationally. The company reported approximately 5,000 pump systems and 261 monitors sold globally by year-end 2018. The business operates as one reportable segment.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $30.44 million | $23.08 million | +31.9% |
| Gross profit / margin | $23.23 million / 76.3% | $17.51 million / 75.9% | Margin +0.4 percentage points |
| Operating income / margin | $6.00 million / 19.7% | $1.29 million / 5.6% | Improved |
| Net income | $6.30 million | $0.50 million | Increased |
| Diluted EPS | $0.52 | $0.04 | Increased |
| Cash from operations | $7.38 million | $3.42 million | +$3.96 million |
| Cash, cash equivalents and investments at year-end | $34.38 million | $26.34 million | +$8.04 million |
| Working capital at year-end | $39.85 million | $31.03 million | +$8.82 million |
| Total liabilities / stockholders’ equity | $6.50 million / $41.95 million | $6.08 million / $32.93 million | — |
The balance sheet reports no borrowings or debt balance. The company said available liquidity was expected to fund projected requirements for at least 12 months from issuance of the financial statements. Investing activities provided $1.52 million and financing activities provided $0.93 million in 2018. Capital expenditures were approximately $0.23 million.
Fourth quarter: Revenue was $8.34 million versus $6.70 million in Q4 2017; net income was $1.71 million versus $0.18 million. Q4 2018 diluted EPS was $0.14 versus $0.02.
Material changes versus prior periods
- Revenue rose $7.36 million year over year, led by device sales and higher disposables and service revenue. U.S. revenue grew 25.7% to $24.5 million; international revenue grew 65.6% to $5.9 million, increasing to 19.5% of total revenue from 15.5%.
- Monitor revenue increased to $6.66 million from $1.85 million; pump revenue increased to $14.54 million from $13.62 million. Recognized pump units rose to 451 from 392, while average pump selling price fell to about $32,200 from $34,700, reflecting international mix and product mix. Recognized monitor units rose to 186 from 70.
- Sales and marketing expense increased 27.1% to $7.00 million, mainly due to a larger sales force and higher commissions. General and administrative expense fell 3.2% to $8.71 million, partly because 2017 included a one-time warrant-modification charge. R&D expense declined 11.9% to $1.52 million.
- Operating cash flow more than doubled. Cash and cash equivalents rose to $28.03 million from $18.21 million, while investments declined to $6.35 million from $8.14 million.
- The 2018 income-tax benefit of $0.11 million and effective tax rate of negative 1.7% included discrete tax benefits, including benefits related to employee option and warrant activity. FY 2017 included a $0.47 million tax expense from remeasuring deferred taxes following U.S. tax reform and had a 64.2% effective rate.
- IRadimed adopted ASC 606 revenue recognition in 2018 using the modified retrospective method; it reported no material impact and no opening retained-earnings adjustment.
Outlook, management commentary and risks
- Management expected 2019 revenue to increase, citing device sales, accessories, disposables and services, continued execution of its critical-care sales strategy, and sales-team expansion. It expected operating expenses to rise with sales-team growth and commissions. The filing provides no numerical 2019 revenue or earnings guidance.
- The company planned to expand its U.S. sales organization by year-end 2019 to 30–32 field representatives and six clinical support representatives, from 24 and five, respectively, at year-end 2018.
- The FDA Warning Letter issued in 2014 remained open at December 31, 2018, despite 510(k) clearance of the MRidium 3860+ system, including DERS, in 2016. The company had accrued expected costs for a related software field update and said they were not expected to be significant.
- On January 16, 2019, the company was notified of a European technical non-conformity concerning clinical evaluation reporting for the 3880 monitor. Its temporary EC Certificate excluded the monitor, and shipments to markets requiring a CE Mark were suspended. The temporary certificate runs through July 27, 2019; successful remediation was not assured.
- A key non-magnetic pump motor is sourced from a single Japanese supplier. The exclusive supply agreement expired January 25, 2019, and renewal was in process. The company generally maintained at least three months of supply for sole-sourced parts.
- Other significant risks include dependence on the pump and a limited product range, medical-device regulatory and quality requirements, distributor and GPO relationships, capital-budget-driven hospital purchasing, competition in patient monitoring, and reliance on a single Florida manufacturing facility. The company also identified the CEO/founder’s influence and related-party facility lease as governance considerations.
- Related-party lease: the Winter Springs facility is leased from an entity controlled by CEO Roger Susi; the lease term expires May 31, 2019 and provides for automatic renewal. The company disclosed monthly base rent of $34,133, subject to CPI adjustments.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end; its auditor did not provide an opinion on internal-control effectiveness because such an audit was not required.
Most important facts for investors to verify
- Progress and FDA status of the still-open Warning Letter, including completion and cost of the pump software field update.
- Resolution of the 3880 monitor’s European conformity issue, restoration of CE-mark shipments, and resulting effect on international sales.
- Renewal terms and continuity of the sole-source motor supply agreement, and adequacy of component inventory or alternative sourcing plans.
- Whether 2019 device growth and sales-force expansion translate into revenue and operating cash flow sufficient to offset higher selling costs.
- How the unusually low 2018 effective tax rate compares with normalized future tax expense; whether any one-time tax benefits recur.
- Underlying demand and unit economics: pump and monitor volumes, selling prices, international mix, recurring disposables and service revenue, and backlog (which the company cautions is cancellable and not a reliable revenue indicator).