IRadimed Corporation (IRMD) — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 7, 2019. IRadimed develops and sells MRI-compatible medical devices, accessories, disposables and services. Its principal products are IV infusion pump systems and patient vital-sign monitoring systems.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $9.96 million | $7.61 million | $27.63 million | $22.10 million |
| Gross profit / margin | $7.80 million / 78.2% | $5.79 million / 76.0% | $21.55 million / 78.0% | $16.87 million / 76.3% |
| Operating income / margin | $2.52 million / 25.3% | $1.45 million / 19.0% | $6.41 million / 23.2% | $4.21 million / 19.1% |
| Net income | $2.45 million | $2.40 million | $6.39 million | $4.60 million |
| Diluted EPS | $0.20 | $0.20 | $0.52 | $0.38 |
| Operating cash flow | Not provided quarterly | $6.28 million | $3.83 million |
Revenue composition: Q3 device revenue rose 37.0% to $7.33 million; disposables and services rose 15.4% to $2.16 million. U.S. revenue increased 35.8% to $8.28 million, while international revenue increased 11.0% to $1.68 million. For the nine months, devices rose 29.1%, disposables and services 13.8%, and total revenue 25.0% year over year.
Costs and taxes: Q3 operating expenses rose 21.6% to $5.28 million, including higher general and administrative and sales and marketing costs; R&D was broadly flat. Q3 2019 tax expense was $174,000 versus a $910,000 tax benefit in Q3 2018. The prior-year tax benefit helped keep reported quarterly net income nearly unchanged despite stronger operating income. The reported effective tax rates were 6.6% and negative 61.0%, respectively.
Liquidity, cash flow and balance sheet
- At September 30, 2019, cash and cash equivalents were $38.64 million and investments were $3.93 million; combined, approximately $42.56 million. Working capital was $49.9 million, compared with $39.9 million at December 31, 2018.
- Total assets were $62.57 million and stockholders’ equity was $51.77 million. Total liabilities were $10.80 million. The filing reports no borrowings; liabilities include $3.01 million in operating lease obligations recognized following adoption of lease accounting.
- Nine-month operating cash flow was $6.28 million, investing cash flow was $2.27 million, and financing cash flow was $2.06 million. Cash increased $10.61 million to $38.64 million. Operating cash flow benefited from higher net income and deferred revenue, partly offset by receivables and inventory outflows.
- Management said existing cash, investments and expected operating cash generation should fund requirements for at least 12 months; it did not anticipate needing additional capital.
Changes, outlook and material matters
- Management expected revenue for the remainder of 2019 to exceed the comparable 2018 period, citing anticipated higher sales of devices, accessories, disposables and services. It expected full-year operating expenses to be higher than 2018, mainly due to sales and marketing and general and administrative costs. No specific numerical guidance was provided.
- Gross margin improvement reflected higher unit sales and favorable geographic mix; nine-month results also benefited from favorable overhead variances. U.S. sales grew faster than international sales, increasing the domestic share of revenue.
- Shipments of the 3880 patient monitor to markets requiring a CE Mark were suspended after a certification review identified a technical non-conformity. IRadimed was pursuing recertification and expected to resume affected shipments in Q4 2019, but cautioned that success was not assured. Its infusion pump and tubing received renewed EC Certificates with an additional four-year term in August 2019.
- The FDA closed out its August 2014 warning letter on October 8, 2019, confirming the cited issues were resolved. The filing also says a prior safety alert was closed in August 2019.
- The company relies significantly on its IV pump and identifies a single-source supplier for its pump’s ultrasonic motor, as well as a single Florida manufacturing and storage facility. Other disclosed risks include regulatory approvals, product liability, competition, GPO and distributor relationships, foreign exchange, and customer purchasing cycles.
- The company renewed its manufacturing and headquarters lease through May 2024, with options that management considered reasonably certain to exercise. The landlord is an entity controlled by Chairman and Chief Technology Officer Roger Susi, making this a related-party arrangement.
- Leslie McDonnell became CEO effective August 19, 2019; founder Roger Susi transitioned to CTO. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track 3880 CE recertification and whether shipments to affected international markets resumed as expected.
- Assess continued growth and product concentration, including the extent to which pump and monitor sales, recurring disposables and service revenue drive results.
- Monitor gross margin, sales and marketing spending, and whether operating expense growth remains consistent with revenue growth.
- Review receivables, inventory, operating cash conversion, and the cash balance alongside the company’s no-additional-capital expectation.
- Evaluate exposure to the sole-source motor supplier and single manufacturing facility, and review the terms and governance of the related-party facility lease.