IRadimed Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. IRadimed develops and sells MRI-compatible medical devices, accessories, disposables and services, principally to hospitals and acute-care facilities. It reports as one operating segment.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $7.11 million | $5.16 million | +37.7% |
| Gross profit / margin | $5.42 million / 76.2% | $3.77 million / 73.1% | Margin +3.1 percentage points |
| Operating income (loss) | $1.09 million | $(0.24) million | Turned profitable |
| Net income (loss) | $0.84 million | $(0.23) million | Turned profitable |
| Diluted EPS | $0.07 | $(0.02) | Improved |
| Operating cash flow | $1.58 million | $(0.18) million | Improved by about $1.77 million |
- Revenue growth reflected higher device, disposable and service sales, plus increased amortization of extended maintenance contracts. U.S. revenue rose 38.5% to $5.98 million; international revenue rose 33.7% to $1.13 million.
- Device revenue increased 42.4% to $4.83 million. Patient-monitoring system revenue rose 208.9% to $1.20 million, while IV infusion pump revenue increased 20.7% to $3.63 million.
- Gross margin improved primarily because higher production output increased overhead absorption, partly offset by higher depreciation. Operating expenses rose 7.9% overall: higher general and administrative and sales and marketing costs were partly offset by lower research and development costs.
- Cash and cash equivalents were $20.09 million and investments were $7.83 million at March 31, 2018, totaling $27.92 million. Working capital was $32.26 million, versus $30.? million at year-end; the filing reports the prior-year figure as $31.0 million. Stockholders’ equity was $34.24 million. No borrowings or debt are reported in the presented balance sheet.
- Cash from investing activities was $0.21 million, including $0.25 million of investment maturities; financing provided $0.09 million, primarily from stock-option exercises. Cash increased $1.89 million during the quarter.
Material changes, outlook and commentary
- Management expects revenue for the remainder of 2018 to increase versus the corresponding 2017 period, citing further penetration of the IV-pump market and expansion of global sales of the 3880 patient monitor. It expects full-year 2018 operating expenses to be higher than 2017, primarily due to sales and marketing. The filing provides no numeric revenue or earnings guidance.
- The 3880 monitor began U.S. sales in 2018. Its Q1 average selling price was approximately $36,300, compared with $20,100 in Q1 2017, when it was only available internationally; management said both periods’ prices reflected introductory promotions and were below prices expected in the future. Pump average selling price fell to approximately $33,300 from $34,500, largely due to international sales mix.
- Management believes cash, investments and operating cash generation will be sufficient for at least 12 months and does not anticipate needing additional capital, while noting financing could be pursued if needed.
- IRadimed adopted ASC 606 on January 1, 2018 using the modified retrospective method. It reported no opening retained-earnings adjustment and no material financial-statement impact. The new lease standard is expected to be adopted in Q1 2019; impact assessment was ongoing.
Risks, contingencies and unusual items
- The FDA Warning Letter concerning device design controls and prior pump software modifications remained open as of March 31, 2018. The company says a 2016 FDA inspection found no further actions necessary in response to the Warning Letter, and the 3860+ pump, including DERS, received 510(k) clearance in December 2016. The filing nevertheless describes potential FDA enforcement actions as a material risk.
- Revenue and profitability remain significantly dependent on the MRidium 3860+ infusion pump and related disposables and services. The company also identifies single-source suppliers—including the pump’s ultrasonic motor—as a potential supply risk, and manufactures and stores products at one Florida facility.
- The headquarters and manufacturing facility is leased from Susi, LLC, an entity controlled by CEO Roger Susi. The lease expires May 31, 2019, subject to renewal provisions; remaining non-cancelable commitments were $464,393. This related-party lease merits investor attention.
- Purchase orders outstanding totaled approximately $2.30 million and were not recorded as balance-sheet liabilities. Management reported no material known legal matters and no material off-balance-sheet arrangements.
- The effective tax rate was 25.4% in Q1 2018. Management noted that the 2017 tax-law accounting amounts remained provisional, although no further adjustments had been recorded by quarter-end.
- Corporate bonds had $138,340 of gross unrealized losses, attributed to interest-rate changes; management did not consider them other-than-temporary impairments. A 100-basis-point interest-rate change was estimated to affect investment fair value by about $123,000.
Important facts for investors to verify
- Whether the FDA Warning Letter is resolved or prompts further restrictions, inspections or corrective actions.
- Whether 2018 revenue growth and monitor adoption continue, and whether promotional pricing gives way to the higher prices management expects.
- Revenue and gross-margin dependence on the infusion pump, customer purchasing cycles, international distributors and key single-source suppliers.
- The lease terms, renewal decisions and governance implications of the related-party facility arrangement.
- Whether operating cash flow remains positive as the 3880 launch and business growth require working capital, and whether the expected expense increases affect profitability.