Iradimed Corp: Form 10-Q for the period ended Jun 30, 2024

The following discussion and analysis should be read in conjunction with our condensed financial statements and the related notes to those statements included in this Quarterly Report, the discussion of certain risks and uncertainties contained in “Part I, Item 1A, Risk Factors” of this Quarterly Report, the discussion under “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1. Business” included in the 2023 Annual Report and the “Cautionary Statements Regarding Forward-Looking Statements” section at the beginning of this Quarterly Report.

Our Business

We develop, manufacture, market and distribute MRI compatible medical devices and accessories, disposables and services relating to them.

We are a leader in the development of innovative MRI compatible medical devices. We are the only known provider of a non-magnetic IV infusion pump system that is specifically designed to be safe for use during MRI procedures. We were the first to develop an infusion delivery system that largely eliminates many of the dangers and problems present during MRI procedures. Standard infusion pumps contain magnetic and electronic components, which can create radio frequency interference and are dangerous to operate in the presence of the powerful magnet that drives an MRI system. Our patented MRidium® MRI compatible IV infusion pump system has been designed with a non-magnetic ultrasonic motor, uniquely designed non-ferrous parts and other special features to safely and predictably deliver anesthesia and other IV fluids during various MRI procedures. Our pump solution provides a seamless approach that enables accurate, safe and dependable fluid delivery before, during and after an MRI scan, which is important to critically ill patients who cannot be removed from their vital medications, and children and infants who must generally be sedated to remain immobile during an MRI scan.

Each IV infusion pump system consists of an MRidium® MRI compatible IV infusion pump, non-magnetic mobile stand, proprietary disposable IV tubing sets and many of these systems contain additional optional upgrade accessories.

Our 3880 MRI compatible patient vital signs monitoring system has been designed with non-magnetic components and other special features to safely and accurately monitor a patient’s vital signs during various MRI procedures. The IRADIMED 3880 system operates dependably in magnetic fields up to 30,000 gauss, which means it can operate virtually anywhere in the MRI scanner room. The IRADIMED 3880 has a compact, lightweight design allowing it to travel with the patient from their critical care unit to the MRI and back, resulting in increased patient safety through uninterrupted vital signs monitoring and decreasing the amount of time critically ill patients are away from critical care units. The features of the IRADIMED 3880 include: wireless Electrocardiogram (ECG) with dynamic gradient filtering; wireless blood oxygen saturation monitoring (SpO2) using Masimo® algorithms; non-magnetic respiratory carbon dioxide (CO2); invasive and non-invasive blood pressure; patient temperature; and optional advanced multi-gas anesthetic agent unit featuring continuous Minimum Alveolar Concentration measurements. The IRADIMED 3880 MRI compatible patient vital signs monitoring system has an easy-to-use design and allows for the effective communication of patient vital signs information to clinicians.

We generate revenue from the sale of MRI compatible medical devices and accessories, extended warranty agreements, services related to maintaining our products and the sale of disposable products used with our devices. The principal customers for our MRI compatible products include hospitals and acute care facilities, both in the United States and internationally. As of June 30, 2024, our direct U.S. sales force consisted of 28 field sales representatives, 4 regional sales directors and supplemented by 7 clinical application specialists. Internationally, we have distribution agreements with independent distributors selling our products.

Selling cycles for our devices have varied widely and have historically ranged between three and six months in duration with more recent trends lengthening beyond this historical range due to lingering pandemic issues. We also enter into agreements with integrated delivery networks (“IDNs”) and healthcare supply contracting companies, which are commonly referred to as group purchasing organizations (“GPOs”) in the U.S., which enable us to sell and distribute our products to their member hospitals. GPOs negotiate volume purchase prices for hospitals, group practices, and other clinics that are members of a GPO. Under our GPO agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. Sales to participating IDNs do not have an associated fee.

Financial Highlights

For the quarter ended June 30, 2024, our revenue increased by $1.8 million, or 11.2 percent, to $17.9 million, compared to $16.1 million for the quarter ended June 30, 2023. Income before the provision for income taxes was $6.3 million for the quarter ended June 30, 2024, compared to $5.3 million for the quarter ended June 30, 2023. Net income was $4.9 million, or $0.38 per diluted share in the quarter ended June 30, 2024, compared to $4.2 million, or $0.33 per diluted share in the quarter ended June 30, 2023.

For the remainder of 2024, we expect higher revenue when compared to the same period in 2023 due to higher sales of our medical devices, related accessories, disposables, and services. We also expect higher operating expenses compared to the same period in 2023 primarily due to higher sales and marketing, regulatory, and general and administrative expenses.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed

financial statements, which we have prepared in accordance with GAAP. The preparation of these condensed financial

statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different

assumptions or conditions.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Annual Report have the greatest potential impact on our financial statements, so we consider them to

be our critical accounting policies and estimates. As of June 30, 2024, there were no material changes to the information provided regarding recent accounting pronouncements in Note 1 to the Financial Statements in the 2023 Annual Report.

Results of Operations

The following table sets forth selected statements of operations data as a percentage of total revenue for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.

(unaudited)

(unaudited)

Comparison of the Three Months Ended June 30, 2024 and 2023

Revenue by Geographic Region

(unaudited)

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Revenue by Type

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(unaudited)

For the three months ended June 30, 2024, revenue increased by $1.8 million, or 11.2 percent, to $17.9 million from $16.1 million for the same period in 2023. This is attributed to continued demand for our IV Infusion Pump System and extended warranty revenue.

Revenue from sales in the U.S. increased by $2.6 million, or 20.2 percent, to $15.5 million for the three months ended June 30, 2024, from $12.9 million for the same period in 2023. Revenue from sales internationally decreased by $0.8 million, or 25.0 percent, for the three months ended June 30, 2024 to $2.4 million, from $3.2 million for the same period in 2023. Domestic sales accounted for 86.6 percent of revenue for the three months ended June 30, 2024, compared to 80.1 percent for the same period in 2023.

Revenue from sales of devices increased by $1.9 million, or 17.2 percent, to $12.7 million for the three months ended June 30, 2024, from $10.8 million for the same period in 2023.

Revenue from sales of our disposables, service and other decreased by $0.1 million, or 2.1 percent, to $4.7 million for the three months ended June 30, 2024, from $4.8 million for the same period in 2023. Revenue from the amortization of extended warranty agreements increased by $0.1 million, or 18.4 percent, to $0.6 million from $0.5 million for the three months ended June 30, 2024 and 2023.

For the six months ended June 30, 2024, revenue increased by $3.9 million, or 12.3 percent, to $35.5 million from $31.6 million for the same period in 2023. This is attributed to the increase in our IV Infusion Pump System, Patient Vital Signs Monitoring Systems, and Ferro Magnetic Detection System.

Revenue from sales in the U.S. increased by $4.0 million, or 16.1 percent, to $28.9 million for the six months ended June 30, 2024, from $24.9 million for the same period 2023. Revenue from sales internationally decreased $0.1 million, or 1.5 percent, to $6.6 million for the six months ended June 30, 2024, from $6.7 million for the six months ended June 30, 2023. Domestic sales accounted for 81.4 percent of revenue for the six months ended June 30, 2024, compared to 78.8 percent for the six months ended June 30, 2023.

Revenue from sales of devices increased by $3.2 million, or 15.1 percent, to $24.6 million for the six months ended June 30, 2024, from $21.4 million for the same period in 2023.

Revenue from sales of our disposables, service and other increased by $0.6 million, or 6.7 percent, to $9.9 million for the six months ended June 30, 2024, from $9.3 million for the same period in 2023. Revenue from the amortization of extended warranty agreements increased by $0.1 million, or 6.9 percent, to $1.1 million from $1.0 million for the six months ended June 30, 2024 and 2023.

Cost of Revenue and Gross Profit

(unaudited)

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For the three months ended June 30, 2024 our cost of revenue remained consistent at $3.9 million for the same period in 2023. For the three months ended June 30, 2024, our gross profit increased by $1.8 million, or 15.0 percent, to $14.0 million from $12.2 million for the same period in 2023. Gross profit margin was 78.1 percent for the three months ended June 30, 2024, compared to 75.5 percent for the same period in 2023. The increase in gross profit margin is primarily due to decreased raw material costs, direct labor efficiencies, and favorable geographic sales mix.

For the six months ended June 30, 2024, cost of revenue increased by $0.4 million, or 5.6 percent, to $8.1 million from $7.7 million for the same period in 2023. Gross profit increased by $3.5 million, or 14.6 percent, to $27.4 million for the six months ended June 30, 2024 from $23.9 million for the same period in 2023. Gross profit margin was 77.1 percent for six months ended June 30, 2024, compared to 75.6 percent for the same period in 2023. The increase in gross profit margin is primarily due to decreased raw material costs, favorable geographic sales mix, and overhead spent as a percentage of revenue.

Operating Expenses

(unaudited)

(unaudited)

General and Administrative

For the three months ended June 30, 2024, general and administrative expense increased by $0.8 million, or 24.2 percent, to $4.1 million from $3.3 million for the same period in 2023. This increase is primarily due to higher regulatory, legal and professional expenses, and increased payroll and benefit expenses.

For the six months ended June 30, 2024, general and administrative expense increased by $0.9 million, or 12.5 percent, to $8.1 million from $7.2 million for the same period last year. This increase is primarily due to higher legal and professional expenses, regulatory consulting, and payroll and benefits expenses.

Sales and Marketing

For the three months ended June 30, 2024, sales and marketing expense increased by $0.6 million, or 20.7 percent, to $3.5 million from $2.9 million for the same period in 2023. This increase is primarily due to higher sales commissions, sales activities expenses, and payroll and benefits expenses.

For the six months ended June 30, 2024, sales and marketing expense increased by $1.4 million, or 23.7 percent, to $7.3 million from $5.9 million for the same period last year. This increase is primarily due to higher sales commissions, sales activities expenses, and payroll and benefits expenses.

Research and Development

For the three months ended June 30, 2024, research and development expense decreased by $0.2 million, or 20.0 percent, to $0.8 million from $1.0 million for the same period in 2023. This is primarily due to us no longer allocating recently approved product parts related to the next generation pump to research and development, offset by increased payroll and benefit expenses. These approved parts are now included in raw material inventory.

For the six months ended June 30, 2024, research and development expense decreased $0.2 million, or 11.1 percent, to $1.6 million from $1.8 million for the same period last year. This is primarily due to higher payroll and benefits expenses as well as prototype and consulting expenses related to the next generation pump.

Other Income, Net

Other income, net consists of interest income, foreign currency gains and losses, and other miscellaneous income. For the three months ended June 30, 2024, other income, net increased by $0.3 million, to $0.6 million from $0.3 million for the same period in 2023. This increase is due to higher interest rates earned by money market fund investments that comprise a significant portion of our cash balances.

For the six months ended June 30, 2024 and 2023, we reported other income, net, of $1.1 million and $0.7 million, respectively. The change is primarily due to interest received in 2023 on money market fund investments.

Income Taxes

For the three and six months ended June 30, 2024, we recorded a provision for income tax expense of $1,368,036 and $2,475,004 respectively. Our effective tax rate was 21.8 percent and 21.5 percent for the three and six months ended June 30, 2024, respectively, and differed from the U.S. Federal statutory rate primarily due to U.S. state income tax expense, partially offset by research and development tax credits.

For the three and six months ended June 30, 2023, we recorded a provision for income tax expense of $1,118,582 and $2,062,171 respectively. Our effective tax rate was 21.1 percent and 21.4 percent respectively and differed from the U.S. Federal statutory rate primarily due to U.S. Federal income tax expense partially offset by research and development tax credits.

As of June 30, 2024 and December 31, 2023, we had not identified or accrued for any uncertain tax positions. We are currently unaware of any uncertain tax positions that could result in significant payments, accruals or other material deviations in this estimate over the next 12 months. We believe that our tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from ours, which could result in the imposition of additional taxes and penalties.

We file tax returns in the United States Federal jurisdiction and many U.S. state jurisdictions. To our knowledge, our returns are not currently under examination by the Internal Revenue Service. The Company remains subject to income tax examinations for our United States Federal and certain U.S. state income taxes for 2019 and subsequent years.

Liquidity and Capital Resources

Our principal sources of liquidity have historically been our cash and cash equivalents balances, cash flow from operations and access to the financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures and dividend payments, if any.

As of June 30, 2024, we had cash and cash equivalents of $48.5 million, stockholders’ equity of $79.7 million, and working capital of $66.1 million. As of December 31, 2023, we had cash and investments of $49.8 million, stockholders’ equity of $71.4 million, and working capital of $59.7 million.

On April 3, 2024, the Company filed a shelf registration statement on Form S-3 (the “2024 Shelf”), which was declared effective by the SEC on May 8, 2024. The 2024 Shelf covers the offering, issuance and sale by the Company of up to an aggregate of $75.0 million of its common stock. As of June 30, 2024, all $75.0 million remained available under the 2024 Shelf.

We believe that our current cash, and any cash generated from operations will be sufficient to meet our ongoing operating requirements for at least the next 12 months and into the foreseeable future. We have acquired land from an unrelated third party and plan to make subsequent improvements thereon in the next one to two years to accommodate our increased operations and expand capacity. We anticipate using available cash for that investment in our future growth. We do not anticipate requiring additional capital; however, if required or desirable, we may seek to obtain a credit facility, raise debt, or issue additional equity in private or public markets.

(unaudited)

Cash provided by operating activities increased by $2.3 million, to $10.5 million for the six months ended June 30, 2024, compared to $8.2 million for the same period in 2023. During the six months ended June 30, 2024, cash provided by operations was positively impacted by net income and inventory purchases, and negatively impacted by cash outflows related to accounts payable.

Cash used in investing activities decreased by $5.2 million, to $1.7 million for the six months ended June 30, 2024, compared to $6.9 million for the same period in 2023. For the six months ended June 30, 2023, we acquired land for $6.2 million in cash to be used for future office, assembly, warehouse, and shipping space to accommodate our increased operations and anticipated growth.

Cash used in financing activities decreased by $3.4 million, to $10.0 million for the six months ended June 30, 2024, compared to approximately $13.4 million for the same period in 2023. In both periods, the Company paid special dividends to our stockholders; and in the 2024 period we commenced a regular quarterly dividend policy, subject to the sole discretion of the Company’s Board of Directors and applicable law.

We market our products to end users in the U.S. and to distributors internationally. Sales to end users in the U.S. are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our current manufacturing and headquarters facility has been leased from Susi, LLC, an entity controlled by our Chairman of the Board and Chief Executive Officer, Roger Susi. Pursuant to the terms of our lease, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index.

Off-Balance Sheet Arrangements

As of June 30, 2024 and December 31, 2023, we did not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commercial commitments since December 31, 2023.

Recent Accounting Pronouncements

As of June 30, 2024, there were no material changes to the information provided regarding recent accounting pronouncements in Note 1 to the Financial Statements in the 2023 Annual Report.

There have been no material changes in our market risks from those disclosed in “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of the 2023 Annual Report.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Exchange Act are designed to ensure that: (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2) such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2024 were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risks discussed in our 2023 Annual Report and those set forth from time to time in our other filings with the SEC. There have been no material changes in our risk factors from those described in our 2023 Annual Report. The risks described in such report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, or future results.