KORU Medical Systems, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results. KORU designs, manufactures, and markets portable medical devices primarily for subcutaneous drug delivery, including the FREEDOM Infusion System. Its revenues are reported across domestic core, international core, and novel therapies.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net revenue | $8.20 million | $7.39 million |
| Gross profit / margin | $5.10 million / 62.3% | $4.15 million / 56.1% |
| Operating expenses | $7.06 million | $7.20 million |
| Operating loss | $1.96 million | $3.06 million |
| Net loss | $1.94 million | $2.41 million |
| Net loss per share, basic and diluted | $0.04 | $0.05 |
| Cash used in operating activities | $0.35 million | $4.66 million |
- Revenue rose 10.9%. Domestic core revenue increased 4.1% to $5.95 million; international core revenue increased 63.1% to $1.79 million; novel therapies revenue declined 21.3% to $0.45 million.
- Gross profit increased 23.1%, and gross margin rose 6.2 percentage points. Management attributed the improvement primarily to outsourced-manufacturing efficiencies and consolidation of U.S. manufacturing sites.
- Operating expenses declined 1.9% year over year. SG&A fell 1.3% and R&D fell 5.7%; depreciation and amortization increased 8.6%.
- Net loss narrowed by $0.47 million, primarily on higher gross profit and lower operating expenses, partly offset by the absence of the prior-year $0.58 million income tax benefit.
Liquidity, debt, and balance sheet
- Cash and cash equivalents were $10.82 million at March 31, 2024, down from $11.48 million at December 31, 2023. The company reported $10.2 million invested in U.S. Treasury bills with 90-day maturities.
- Current assets were $19.48 million and current liabilities were $4.85 million. Total assets were $27.50 million; total liabilities were $8.38 million; stockholders’ equity was $19.12 million.
- Inventory was $3.15 million, down $0.33 million from year-end. Accounts receivable increased to $4.39 million from $4.05 million.
- On March 8, 2024, KORU entered into a credit agreement providing for a $5 million revolving facility and a $5 million term loan facility, secured by substantially all assets subject to customary exceptions. Neither facility had outstanding borrowings at quarter-end. The revolving facility matures December 31, 2025; the term loan matures December 1, 2028.
- The separate insurance-premium financing note had a $0.16 million balance at quarter-end and carries a 9.5% annual percentage rate. Operating and finance lease liabilities totaled $3.61 million and $0.40 million, respectively.
- Management said cash on hand and operating cash flows should meet requirements for at least the next 12 months. Longer-term strategic plans may require borrowing, additional debt, equity financing, or a combination; the filing gives no assurance that additional financing will be available.
Outlook, risks, and notable items
- No specific revenue, earnings, or margin guidance was provided. Management cited growth in core business volumes, new patient starts and share gains domestically, and international growth associated with increased immunoglobulin supply, market penetration, and geographic expansion.
- International orders of approximately $0.26 million were expedited in March to help distribution partners maintain inventory amid potential supply disruption related to a BSI regulatory review. In an April 8, 2024 subsequent event, KORU reported that its appeal was upheld, sales were not disrupted, and its products remained certified, marketed, and sold in the EU. The company plans to address the identified nonconformance through the routine BSI assessment process.
- Management identified risks including customer ordering patterns, raw-material and labor availability and costs, inventory conversion to cash, growth in the SCIg market and new patient starts, biopharmaceutical partnerships, regulatory reviews, competition, reimbursement, product acceptance, and access to capital.
- The company reported no litigation believed material to its financial condition. A $6.39 million valuation allowance was recorded against deferred tax assets at March 31, 2024; the filing says future evidence could lead to a partial or full reduction.
Important facts for investors to verify
- Whether international core growth and the reported increase in patient-related demand continue, and how much growth reflects the March expedited orders.
- Whether improved gross margin from manufacturing efficiencies is sustainable as volume and product mix change.
- Operating cash use, working-capital movements, and inventory levels, particularly given management’s longer-term potential financing needs.
- Availability, terms, and any future use of the HSBC credit facilities, as well as the impact of their asset security and covenants.
- Progress on the BSI nonconformance through routine assessment and any effects of regulatory reviews on EU sales or supply.
- Future realizability of deferred tax assets and any change in the valuation allowance.