IRadimed Corporation — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. The interim financial statements are unaudited. IRadimed develops, manufactures and sells MRI-compatible IV infusion pump systems, disposable tubing sets and related services.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $7.67 million | $8.19 million | $26.51 million | $22.79 million |
| Gross profit | $6.27 million | $6.60 million | $21.66 million | $18.45 million |
| Gross margin | 81.7% | 80.6% | 81.7% | 81.0% |
| Operating income | $2.59 million | $3.20 million | $9.41 million | $8.16 million |
| Net income | $1.56 million | $1.87 million | $6.07 million | $5.13 million |
| Diluted EPS | $0.13 | $0.15 | $0.50 | $0.42 |
- Q3 revenue fell 6.4%; pump-system revenue declined 12.2%, with 184 systems recognized versus 248 a year earlier. Disposable IV sets and services grew 23.7%. International revenue rose 67.1%, while U.S. revenue fell 10.7%.
- For the first nine months, revenue rose 16.3%. Device revenue increased 12.6%, and disposable IV sets and services increased 35.6%. Pump systems recognized totaled 709 versus 685.
- Operating expenses were $3.67 million in Q3, up from $3.40 million, principally reflecting higher general and administrative and sales and marketing costs. Nine-month G&A expense increased 28.2%, including higher stock compensation associated with modification of a former chairman’s awards.
- Net cash provided by operations was $7.18 million for the first nine months, versus $5.08 million. Investing activities used $1.34 million; financing activities used $9.20 million, primarily for share repurchases.
- At September 30, cash and cash equivalents were $16.00 million and investments were $7.81 million. Working capital was $29.4 million and stockholders’ equity was $30.64 million. The filing reports no debt balance. Management said available cash and operating cash flow should cover requirements for at least 12 months.
- IRadimed spent $9.97 million to repurchase 569,213 shares under a $10 million authorization. Shares outstanding were 10,711,975 at September 30.
Outlook, risks and notable matters
- Management expected 2016 revenue to exceed 2015, but warned of lower revenue for the remainder of 2016 because its expanded hospital-department sales strategy was lengthening sales cycles. Management also expected 2016 operating expenses to rise due to headcount, stock compensation, development of a patient vital signs monitor and depreciation.
- The patient vital signs monitor was expected to launch during 2017; the filing provides no quantified revenue or earnings guidance.
- The FDA’s 2014 Warning Letter and review of the MRidium 3860+ 510(k) submission remained unresolved. After an initial non-substantial-equivalence decision, the FDA reinstated the submission in June 2016 and allowed 180 days for specified display-message changes; it said additional human-factors testing was not required. The company continued working with the FDA. A July 2016 inspection resulted in a Form 483 with three observations.
- IRadimed’s business depends heavily on its MRidium pump systems and related disposables. Key risks include FDA action or delayed clearance, product safety or recall issues, single-source suppliers, extended customer sales cycles, hospital capital budgets, international distributors and currency exposure. A 10% yen move was estimated to have an immaterial effect on net income; a 100-basis-point interest-rate change was estimated to change investment fair value by about $116,000.
- The company leases its headquarters and manufacturing facility from an entity controlled by CEO and Chairman Roger Susi. The lease runs through May 2019, with renewal options. The prior securities class-action appeal was dismissed with prejudice in 2015.
- Disclosure controls were assessed as effective at a reasonable-assurance level, and the company reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress and timing of FDA resolution, the required 510(k) changes, and any follow-up to the July 2016 Form 483.
- Whether the new hospital sales strategy converts into orders and whether sales cycles and pump volumes recover after the Q3 decline.
- Execution, timing, regulatory status and spending for the planned patient vital signs monitor launch.
- Drivers and sustainability of the margin and earnings trends, including rising operating expenses and stock-based compensation.
- Cash deployment after the near-completion of the repurchase authorization, and ongoing exposure to the related-party facility lease and single-source suppliers.