KORU Medical Systems, Inc. (Repro Med Systems, Inc.) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company designs, manufactures and markets portable medical devices, primarily for ambulatory infusion. It reports as one operating segment. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior period |
|---|---|---|
| Net sales | $6.24 million | $5.43 million; up 15.0% |
| Gross profit / gross margin | $3.62 million / 58.0% | $3.23 million / 59.5% |
| Operating expenses | $6.75 million | $5.45 million |
| Operating loss | $3.13 million | $2.21 million |
| Net loss / diluted loss per share | $2.54 million / $0.06 | $1.28 million / $0.03 |
| Cash used in operating activities | $1.75 million | $2.61 million |
| Cash and cash equivalents | $22.58 million at March 31, 2022 | $25.33 million at December 31, 2021 |
| Total assets / total liabilities | $43.43 million / $8.63 million | $41.29 million / $4.79 million at December 31, 2021 |
| Current assets / current liabilities | $33.93 million / $4.71 million | $37.32 million / $4.79 million at December 31, 2021 |
Gross margin fell 1.5 percentage points. Cash declined $2.76 million during the quarter. Investing activities used $0.75 million, mainly for the new facility and equipment; financing activities used $0.25 million. The company had a $255,614 current note payable, but no balance drawn on its $3.5 million KeyBank revolving line at quarter-end. Total operating lease liabilities were $4.31 million.
Material changes versus Q1 2021
- Domestic core sales rose 13.2% to $4.99 million, attributed to growth in pumps and consumables, a larger subcutaneous immunoglobulin market, and initiatives including prefills and label expansions.
- International core sales declined 8.6% to $0.89 million, which management attributed to ordering patterns among several smaller customers.
- Novel therapies sales increased to $0.36 million from $0.04 million, primarily from initial non-recurring engineering revenue under a pre-commercialization development agreement with a large SCIg customer.
- Operating expenses rose 24.0% to $6.75 million. SG&A increased 10.0%, while R&D rose 240.9% to $1.15 million. Management cited commercialization and business-development hires, quality and regulatory consulting, product-development work, and higher internal capability costs. The prior-year period included $1.0 million of costs related to executive transition and board recruitment.
- Net loss widened by $1.26 million to $2.54 million. A $0.60 million income-tax benefit was recorded in Q1 2022.
Outlook, management commentary and risks
- Management estimated 2022 expenses of $27–$28 million and capital investment of $1.5–$2.0 million for manufacturing and new-facility leasehold improvements, net of approximately $1.0 million in pre-approved financing expected to be executed in Q2.
- The company expected to move to its new manufacturing facility and corporate headquarters in June 2022. It expected the transition of needle-set and tubing production to a secondary source, and the facility relocation, to be completed by the end of 2022.
- Inventory was $6.02 million at quarter-end. Management expected it to rise in the short term to support order fulfillment and supply continuity during the production transition and move, then convert to cash as those activities are completed.
- Management stated cash, operating cash flows and available credit were expected to meet requirements for at least 12 months. It cautioned that longer-term plans may require debt, equity financing or both, potentially after 2023, and that additional financing may be needed sooner if liquidity is insufficient.
- Risks cited include COVID-19 effects on patient care and demand; raw-material and labor availability and costs; customer ordering patterns; inventory conversion; supply-chain and facility-transition execution; product acceptance and competition; regulatory and reimbursement matters; R&D outcomes; and access to capital. The filing reported no material change to the risk factors in the 2021 Form 10-K.
- A $0.7 million Employee Retention Credit receivable recorded at December 31, 2021 had not been received by March 31, 2022. Cash held above FDIC insurance limits was uninsured. No litigation was identified as material to the company’s financial condition. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether domestic growth and novel-therapy/NRE revenue continue, and whether international sales recover from the quarter’s decline.
- Whether the lower-margin NRE mix and higher raw-material and labor costs continue to pressure gross margin.
- Execution, timing, cost and supply effects of the secondary-source transition and facility relocation, including the expected inventory build and conversion to cash.
- Receipt of the $0.7 million tax credit, execution of the expected equipment financing, and the status or renewal of the KeyBank line due June 1, 2022.
- Cash burn relative to management’s 2022 expense and capital-investment estimates, and the need for external financing over the longer term.