Business context and reporting period
IRadimed Corporation (Nasdaq: IRMD) filed this Form 10-K for the fiscal year ended December 31, 2019. It develops and sells MRI-compatible IV infusion pumps, patient vital-sign monitors, accessories, disposables and related services, primarily to hospitals and acute-care facilities. The filing reports one operating segment. U.S. direct sales accounted for 80.3% of revenue; international sales, made through distributors, accounted for 19.7%.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $38.5 million | $30.4 million |
| Gross profit / margin | $29.7 million / 77.1% | $23.2 million / 76.3% |
| Operating income / margin | $8.6 million / 22.5% | $6.0 million / 19.7% |
| Net income | $9.6 million | $6.3 million |
| Diluted EPS | $0.78 | $0.52 |
| Cash from operations | $10.2 million | $7.4 million |
| Cash, cash equivalents and investments at year-end | $46.3 million | $34.4 million |
| Working capital at year-end | $53.1 million | $39.9 million |
Revenue grew 26.5%. Device revenue rose 31.0% to $27.8 million, including pump revenue of $18.1 million and monitor revenue of $9.7 million. Disposables, services and other revenue increased 15.3% to $8.9 million. Gross margin improved 0.8 percentage points. Operating expenses increased 22.2% to $21.1 million, led by higher sales and marketing costs and general and administrative costs. The annual net income tax benefit was $0.6 million, reflecting primarily discrete tax benefits associated with equity awards.
At December 31, 2019, the company reported no borrowings in the presented balance sheet; it did report $3.0 million of operating lease liabilities. Total liabilities were $11.2 million and stockholders’ equity was $55.5 million. The company said available liquidity and expected operating cash flows should cover projected requirements for at least 12 months from issuance of the financial statements. It reported no off-balance-sheet arrangements.
Material changes versus prior periods
- 2019 revenue increased 26.5% from 2018, following 31.9% growth in 2018. Net income rose from $6.3 million to $9.6 million.
- Pump units recognized as revenue increased to 519 from 451; the reported average selling price rose to approximately $34,800 from $32,200. Monitor units increased to 278 from 186, while average selling price decreased to approximately $34,700 from $35,100.
- Cash and cash equivalents rose to $43.5 million from $28.0 million. Operating cash flow improved by $2.9 million to $10.2 million.
- The installed base reached approximately 5,515 pump systems and 539 monitors, compared with 5,000 and 261, respectively, at year-end 2018.
- The company adopted the new lease accounting standard in 2019, recording a $3.0 million operating lease right-of-use asset and corresponding liability at year-end; adoption did not affect earnings or cash flows.
- For the fourth quarter, revenue was $10.9 million versus $8.3 million a year earlier; net income was $3.2 million versus $1.7 million. The 2019 quarter included an $0.9 million income tax benefit.
Outlook, management commentary, risks and unusual items
Management expected 2020 revenue to increase, citing higher device and related-product sales, execution of its critical-care strategy and sales-team growth. It also expected operating expenses to increase due to headcount expansion and higher sales commissions. The filing provides no numerical 2020 revenue or earnings guidance.
- The FDA issued a close-out letter in October 2019 confirming resolution of all issues in its August 2014 warning letter. A related 3860+ software field update was underway; the company accrued expected costs and said they would not be significant.
- The company depends on a limited product portfolio and a single manufacturing facility in Florida. Certain critical components are single-sourced, including the pump’s ultrasonic motor; the supplier agreement runs through February 2024.
- The filing identified uncertainty around COVID-19, including possible disruption to hospital access, international sales and suppliers. The company said it was monitoring its supply chain but could not determine the outbreak’s business impact.
- Other risks include medical-device regulation and product quality, EU Medical Device Regulation recertification, distributor and GPO relationships, lengthy hospital sales cycles, competition in patient monitoring, and customer spending constraints.
- Roger Susi transitioned from CEO to CTO in August 2019; Leslie McDonnell became CEO. The company leases its headquarters and manufacturing facility from an entity controlled by Susi, with the lease extended through May 2024.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether 2020 growth expectations were achieved, particularly as COVID-19 affected hospital purchasing, distributor activity and component supply.
- Subsequent growth in pump and monitor placements, recurring disposable and service revenue, and sales into ICU, ER and other critical-care departments.
- Current status and cost of the pump software field update, and any further FDA or other regulatory actions.
- Supplier continuity and terms for the sole-source motor, as well as progress on EU MDR compliance and recertification.
- Cash conversion, receivables and working-capital needs as sales scale; the filing reported year-end accounts receivable of $7.3 million versus $4.2 million in 2018.
- Effects of operating-expense growth, equity compensation and discrete tax benefits on sustainable margins and earnings.