Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.: 001-36534
IRADIMED CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
73-1408526
(State or other jurisdiction ofincorporation or organization)
(I.R.S. EmployerIdentification Number
1025 Willa Springs DriveWinter Springs, Florida
32708
(Address of principal executive offices)
(Zip Code)
(407) 677-8022
(Registrant’s telephone number, including area code)
N/A
(Former Name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol
Name of each exchange on which registered:
Common stock, par value $0.0001
IRMD
NASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 12,565,110 shares of common stock, par value $0.0001 per share, outstanding as of July 31, 2022.
Page
Cautionary Note Regarding Forward-Looking Statements
3
Part I
Financial Information
5
Item 1
Condensed Financial Statements
(a) Condensed Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021
(b) Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)
6
(c) Condensed Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)
7
(d) Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)
8
(e) Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)
9
(f) Notes to Unaudited Condensed Financial Statements
10
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3
Quantitative and Qualitative Disclosures About Market Risk
24
Item 4
Controls and Procedures
25
Part II
Other Information
26
Legal Proceedings
Item 1A
Risk Factors
Unregistered Sale of Equity Securities and Use of Proceeds
Default Upon Senior Securities
Mine Safety Disclosures
Item 5
Item 6
Exhibits
27
Signatures
28
2
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements include, but are not limited to, statements about:
Forward-looking statements are not guarantees of future performance and are subject to substantial risks and uncertainties that could cause the actual results to differ materially from those that we predicted in the forward-looking statements. Investors should carefully review the information contained under the caption “Risk Factors” contained in Item 1A for a description of risks and uncertainties that could cause actual results to differ from those that we predicted. All forward-looking statements are based on information available to us on the date hereof, and we assume no obligation to update forward-looking statements, except as required by Federal Securities laws.
Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “IRADIMED,” the “Company,” “we,” “our,” and “us” refer to IRADIMED CORPORATION.
4
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CONDENSED BALANCE SHEETS
June 30,
December 31,
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
52,157,539
61,999,550
Investments
—
501,855
Accounts receivable, net of allowance for doubtful accounts of $79,102 as of June 30, 2022 and $60,361 as of December 31, 2021
8,382,238
5,136,599
Inventory, net
4,857,181
4,299,799
Prepaid expenses and other current assets
802,466
1,000,716
Prepaid income taxes
2,295,548
3,306,438
Total current assets
68,494,972
76,244,957
Property and equipment, net
2,235,636
2,069,376
Intangible assets, net
1,543,132
1,118,584
Operating lease right-of-use asset, net
2,345,851
2,482,084
Deferred income taxes, net
902,912
765,096
Other assets
201,334
201,325
Total assets
75,723,837
82,881,422
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
822,118
782,903
Accrued payroll and benefits
2,269,167
2,814,560
Other accrued taxes
235,370
140,315
Warranty reserve
100,769
108,880
Deferred revenue
2,287,144
2,553,096
Current portion of operating lease liability
284,891
276,568
Other current liabilities
138,441
146,435
Total current liabilities
6,137,900
6,822,757
1,626,339
1,679,343
Operating lease liability, less current portion
2,060,960
2,205,516
Total liabilities
9,825,200
10,707,616
Stockholders’ equity:
Common stock; $0.0001 par value; 31,500,000 shares authorized; 12,561,025 shares issued and outstanding as of June 30, 2022 and 12,544,024 shares issued and outstanding as of December 31, 2021
1,256
1,254
Additional paid-in capital
25,733,821
25,160,618
Retained earnings
40,163,560
46,994,922
Accumulated other comprehensive income
17,012
Total stockholders’ equity
65,898,637
72,173,806
Total liabilities and stockholders’ equity
See accompanying notes to unaudited condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
For the Six Months Ended
Revenue
12,721,569
9,810,423
25,032,279
19,034,419
Cost of revenue
2,581,806
2,478,122
5,512,992
4,639,802
Gross profit
10,139,763
7,332,301
19,519,287
14,394,617
Operating expenses:
General and administrative
2,402,795
2,564,619
5,118,746
4,994,988
Sales and marketing
2,907,788
2,469,777
5,977,344
4,848,901
Research and development
662,599
453,679
1,181,694
929,496
Total operating expenses
5,973,182
5,488,075
12,277,784
10,773,385
Income from operations
4,166,581
1,844,226
7,241,504
3,621,232
Other income (loss), net
13,102
13,195
(1,812)
7,532
Income before provision for income taxes
4,179,683
1,857,421
7,239,692
3,628,764
Provision for income tax expense
938,631
387,727
1,511,926
772,221
Net income
3,241,052
1,469,694
5,727,766
2,856,543
Net income per share:
Basic
0.26
0.12
0.46
0.23
Diluted
0.45
Weighted average shares outstanding:
12,560,812
12,313,563
12,556,837
12,312,078
12,632,755
12,554,828
12,641,424
12,539,483
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive (loss) income:
Change in fair value of available-for-sale securities, net of tax expense (benefit) of $(22) and $(5,772) for the three months ended June 30, 2022 and 2021, respectively, and $9,098 and $(7,331) for the six months ended June 30, 2022 and 2021, respectively
(68)
1,790
(10,953)
(3,079)
Realized gain on available-for-sale securities reclassified to net income, net of tax expense of $1,966 and $3,176 for the three months ended June 30, 2022 and 2021, respectively, and $1,966 and $3,176 for the six months ended June 30, 2022 and 2021, respectively
(6,059)
(9,829)
Other comprehensive (loss)
(6,127)
(8,039)
(17,012)
(12,908)
Comprehensive income
3,234,925
1,461,655
5,710,754
2,843,635
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional
Other
Common Stock
Paid-in
Retained
Comprehensive
Stockholders’
Shares
Amount
Capital
Earnings
Income
Equity
Balances, December 31, 2021
12,544,024
2,486,713
Dividends paid
(12,559,127)
Other comprehensive loss
(10,885)
Stock-based compensation expense
453,360
Net share settlement of restricted stock units
3,879
1
(67,381)
(67,380)
Exercise of stock options
12,566
71,947
71,948
Balances, March 31, 2022
12,560,469
25,618,544
36,922,508
6,127
62,548,435
121,003
556
(5,726)
Balances, June 30, 2022
12,561,025
Balances, December 31, 2020
12,308,432
1,231
23,676,843
37,669,451
37,087
61,384,612
1,386,849
(4,869)
347,741
3,502
(38,707)
250
2,460
Balances, March 31, 2021
12,312,184
23,988,337
39,056,300
32,218
63,078,086
358,012
2,727
(15,875)
(15,874)
2,125
20,235
Balances, June 30, 2021
12,317,036
1,232
24,350,709
40,525,994
24,179
64,902,114
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
Operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Change in allowance for doubtful accounts
21,370
(879)
Change in provision for excess and obsolete inventory
19,824
52,978
Depreciation and amortization
928,101
680,091
Gain on disposal of property and equipment
(4,894)
705,753
Stock-based compensation
574,363
290,183
(144,948)
(13,005)
Loss on maturities of investments
(8,025)
Changes in operating assets and liabilities:
Accounts receivable
(3,295,542)
691,107
Inventory
(587,502)
(493,488)
(451,276)
(1,473,503)
10,419
30,425
(15,622)
(79,060)
(545,393)
295,292
95,055
18,471
(8,111)
18,474
(253,074)
1,402,978
(7,995)
1,010,890
(468,588)
Net cash provided by operating activities
3,065,406
4,513,772
Investing activities:
Proceeds from maturities of investments
500,000
950,000
Purchases of property and equipment
(371,935)
(240,543)
Capitalized intangible assets
(475,198)
(100,410)
Net cash (used in) provided by investing activities
(347,133)
609,047
Financing activities:
Proceeds from exercises of stock options
71,949
22,695
Taxes paid related to the net share settlement of equity awards
(73,106)
(54,581)
Net cash used in financing activities
(12,560,284)
(31,886)
Net (decrease) increase in cash and cash equivalents
(9,842,011)
5,090,933
Cash and cash equivalents, beginning of period
50,068,728
Cash and cash equivalents, end of period
55,159,661
Supplemental disclosure of cash flow information:
Cash paid for income taxes
757,137
963,722
ROU asset recognized in exchange for new lease obligation
27,713
Operating and short-term lease payments recorded within cash flow provided by operating activities
257,117
238,982
Notes to Unaudited Condensed Financial Statements
1 — Basis of Presentation
The accompanying interim condensed financial statements of IRADIMED CORPORATION (“IRADIMED”, the “Company”, “we”, “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The interim financial information is unaudited, but reflects all normal adjustments that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Operating results for the three months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, and other interim perdiods, or future year or period.
The accompanying interim condensed financial statements should be read in conjunction with the financial statements and related footnotes to financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. The accounting policies followed in the preparation of these interim condensed financial statements, except as described in Note 1, are consistent in all material respects with those described in Note 1 of our Form 10-K.
We operate in one reportable segment which is the development, manufacture and sale of Magnetic Resonance Imaging (“MRI”) compatible medical devices, related accessories, disposables and service for use primarily by hospitals and acute care facilities during MRI procedures.
Certain Significant Risks and Uncertainties
We market our products to end users in the United States and to third-party distributors internationally. Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.
We have deposited our cash and cash equivalents with various financial institutions. Our cash and cash equivalents balances exceed federally insured limits regularly throughout the year. We have not incurred any losses related to these balances.
Our medical devices require clearance from the Food and Drug Administration and international regulatory agencies prior to commercialized sales. Our future products may not receive required approvals. If we were denied such approvals, or if such approvals were revoked or delayed or if we were unable to timely renew certain approvals for existing products, it would have a materially adverse impact on our business, results of operations and financial condition.
Certain key components of our products essential to their functionality are sole-sourced. Any disruption in the availability of these components would have a materially adverse impact on our business, results of operations and financial condition.
COVID-19 Considerations
The worldwide COVID-19 pandemic has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the United States and globally. From the beginning of this global health crisis, our priority has been the safety and well-being of our employees and continuing to supply our customers with access to our therapeutic and diagnostic device solutions. Due to the evolving and uncertain nature of COVID-19, it is reasonably possible that it could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. These estimates relate to certain accounts including, but not limited to, intangible assets, and other long-lived assets. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer, supplier and hospital behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements to be Implemented
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU
2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses and ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provided additional implementation guidance on ASU 2016-03. The previously mentioned ASUs are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We do not expect the adoption of these ASUs to have a material impact on our financial condition, results of operations or cash flows.
2 — Revenue Recognition
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by geographic region and revenue type as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow.
Revenue information by geographic region is as follows:
Three Months Ended
United States
10,816,691
8,043,156
20,796,032
15,315,986
International
1,904,878
1,767,267
4,236,248
3,718,433
Total revenue
Revenue information by type is as follows:
Devices:
MRI Compatible IV Infusion Pump Systems
3,853,016
2,456,767
7,134,955
5,960,114
MRI Compatible Patient Vital Signs Monitoring Systems
4,921,619
3,377,719
10,116,370
5,981,549
Total Devices revenue
8,774,635
5,834,486
17,251,325
11,941,663
Disposables, services and other
3,430,005
3,490,969
6,748,907
6,126,435
Amortization of extended warranty agreements
516,929
484,968
1,032,047
966,321
Contract Liabilities
Our contract liabilities consist of:
Advance payments from customers
451,346
551,267
Shipments in-transit
37,348
70,295
Extended warranty agreements
3,424,788
3,610,877
Total
3,913,482
4,232,439
11
Changes in the contract liabilities during the periods presented are as follows:
Deferred
Contract liabilities, December 31, 2021
Increases due to cash received from customers
1,969,841
Decreases due to recognition of revenue
(2,288,798)
Contract liabilities, June 30, 2022
Contract liabilities, December 31, 2020
4,254,672
2,426,575
(1,673,484)
Contract liabilities, June 30, 2021
5,007,763
Capitalized Contract Costs
Our capitalized contract costs totaled $347,391 and $357,810 as of June 30, 2022 and December 31, 2021, respectively.
3 — Basic and Diluted Net Income per Share
Basic net income per share is based upon the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock options, restricted stock units and performance-based restricted stock units granted by us represent the only dilutive effect reflected in diluted weighted-average shares outstanding.
The following table presents the computation of basic and diluted net income per share:
Three Months Ended June 30,
Six Months Ended June 30,
Weighted-average shares outstanding — Basic
Effect of dilutive securities:
Stock options
19,168
194,419
22,784
192,347
Restricted stock units
52,775
46,846
61,803
35,058
Weighted-average shares outstanding — Diluted
Basic net income per share
Diluted net income per share
Stock options and restricted stock units excluded from the calculation of diluted net income per share because the effect would have been anti-dilutive are as follows:
Anti-dilutive stock options and restricted stock units
30,728
1,500
25,197
1,635
12
4 — Inventory, net
Inventory consists of:
Raw materials
4,019,961
3,777,846
Work in process
334,261
191,722
Finished goods
706,333
513,782
Inventory before allowance for excess and obsolete
5,060,555
4,483,350
Allowance for excess and obsolete
(203,374)
(183,551)
5 — Property and Equipment, net
Property and equipment consist of:
Computer software and hardware
971,049
837,826
Furniture and fixtures
1,483,259
1,252,434
Leasehold improvements
255,586
237,086
Machinery and equipment
2,079,385
2,066,003
Tooling in-process
583,075
537,043
5,372,354
4,930,392
Accumulated depreciation
(3,136,718)
(2,861,016)
Depreciation expense of property and equipment was $142,710 and $137,598 for the three months ended June 30, 2022 and 2021, respectively, and $277,581 and $264,737 for the six months ended June 30, 2022 and 2021, respectively.
Property and equipment, net, information by geographic region is as follows:
2,064,235
1,855,012
171,401
214,364
Total property and equipment, net
Long-lived assets held outside of the United States consist principally of tooling and machinery and equipment, which are components of property and equipment, net.
13
6 — Intangible Assets, net
The following table summarizes the components of intangible asset balances:
Patents — in use
392,037
372,502
Patents — in process
95,756
111,593
Internally developed software — in use
872,218
Internally developed software — in process
939,939
468,441
Trademarks
27,697
2,327,647
1,852,451
Accumulated amortization
(784,515)
(733,867)
Amortization expense of intangible assets was $25,393 and $25,104 for the three months ended June 30, 2022 and 2021, respectively, and $50,649 and $51,222 for the six months ended June 30, 2022 and 2021, respectively.
Expected annual amortization expense for the remaining portion of 2022 and the next five years related to intangible assets is as follows (excludes in process intangible assets):
Six months ending December 31, 2022
50,473
2023
100,946
2024
100,544
2025
97,374
2026
85,658
2027
11,945
7 — Investments
Our investments consist of bonds that we have classified as available-for-sale and are summarized in the following tables:
June 30, 2022
Gross
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. corporate bonds
December 31, 2021
491,975
9,880
8 — Fair Value Measurements
The fair values of cash equivalents, accounts receivables, net and accounts payable approximate their carrying amounts due to their short duration.
14
The fair value of our assets and liabilities subject to recurring fair value measurements are as follows:
Fair Value at June 30, 2022
Quoted Prices
Significant
in Active
Market for
Observable
Unobservable
Identical Assets
Inputs
(Level 1)
(Level 2)
(Level 3)
Fair Value at December 31, 2021
Our corporate bonds are valued by a third-party custodian at closing prices from secondary exchanges or pricing vendors on the valuation date.
9 — Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, for the three months ended June 30, 2022 and 2021 are as follows:
Unrealized (Losses)
Gains on
Available-For-Sale
Securities
Balance at March 31, 2022
Loss on available-for-sale securities, net
Reclassification realized in net earnings
Balance at June 30, 2022
Balance at March 31, 2021
Gains on available-for-sale securities, net
Balance at June 30, 2021
The components of accumulated other comprehensive income, net of tax, for the six months ended June 30, 2022 and 2021 are as follows:
Balance at December 31, 2021
Balance at December 31, 2020
15
10 — Stock-Based Compensation
Stock-based compensation was recognized as follows in the Condensed Statements of Operations:
7,955
54,937
87,379
109,148
10,604
180,854
207,374
361,058
62,253
91,360
199,675
173,295
40,191
30,861
79,935
62,252
As of June 30, 2022, we had $3,131,684 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.79 years. As of June 30, 2022, we had $285,667 of unrecognized compensation cost related to unvested performance-based restricted stock units, which is expected to be recognized over a weighted-average period of 2.23 years.
On May 26, 2022, the Company announced the appointment of John Glenn as Chief Financial Officer and entered into an employment agreement on May 21, 2022. Pursuant to his employment agreement, Mr. Glenn was awarded a grant of restricted stock units totaling $750,000 in value using the Company’s closing stock price on the day preceeding his hire date.
The following table presents a summary of our stock-based compensation activity for the six months ended June 30, 2022 (shares):
Performance
Based
Stock
Restricted
Options
Stock Units
Outstanding beginning of period
39,576
131,182
18,301
Awards granted
26,019
Awards exercised/vested
(12,566)
(6,199)
Awards canceled/ forfeited
(25,927)
(9,236)
Outstanding end of period
27,010
125,075
9,065
11 — Income Taxes
For the three and six months ended June 30, 2022, we recorded a provision for income tax expense of $938,631 and $1,511,926, respectively. Our effective tax rate was 22.5 percent and 20.9 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to U.S. state income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.
For the three and six months ended June 30, 2021, we recorded a provision for income tax expense of $387,727 and $772,221, respectively. Our effective tax rate was 20.9 percent and 21.3 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to U.S. state income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.
As of June 30, 2022, and December 31, 2021, 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. Our returns are not currently under examination by the Internal Revenue Service. The Company remains subject to income tax examinations for our United States
16
Federal and certain U.S. state income taxes for 2017 and subsequent years and various other U.S. state income taxes for 2016 and subsequent years.
12 — Leases
We have entered into operating lease contracts for our office and various office equipment.
We have one material lease contract outstanding. In January 2014, we entered into a non-cancelable operating lease, commencing July 1, 2014, for our manufacturing and headquarters facility in Winter Springs, Florida owned by Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman of the Board, Roger Susi. Pursuant to the terms of our lease for this property, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index. For the six months ended June 30, 2022 and 2021, the Company paid Susi, LLC $237,008 and $224,866 respectively. For the year ended December 31, 2021, the Company paid Susi, LLC $461,874 related to this lease. Under the terms of the lease, we are responsible for insurance and maintenance expenses. Prior to May 31, 2019, the expiration date of the initial lease term, and pursuant to the terms of the lease contract, we renewed the lease for an additional five years, resulting in a new lease expiration date of May 31, 2024. Unless advance written notice of termination is timely provided, the lease will automatically renew for one additional successive term of five years beginning in 2024, and thereafter, will be renewed for successive terms of one year each. At the time we adopted ASU 2016-02, Leases (Topic 842), we concluded that we would exercise the remaining five-year option, resulting in a remaining lease term of 6.9 years as of June 30, 2022. This lease agreement does not contain any residual value guarantee or material restrictive covenants.
Operating lease cost recognized in the Condensed Statements of Operations is as follows:
53,854
51,094
107,708
102,189
54,710
53,406
109,420
103,962
3,014
2,860
6,028
5,719
8,350
7,923
16,700
15,845
119,928
115,283
239,856
227,715
Lease costs for short-term leases were immaterial for the three and six months ended June 30, 2022 and 2021.
Maturity of our operating lease liability as of June 30, 2022 is as follows:
207,647
415,294
411,008
Thereafter
989,856
Total lease payments
2,854,393
Imputed interest
(508,543)
Present value of lease liability
2,345,850
13 — Commitments and Contingencies
Purchase commitments. We had various purchase orders for goods or services totaling $5,830,150 and $5,604,456 as of June 30, 2022 and December 31, 2021, respectively. Amounts recognized in our balance sheet related to these purchase orders were immaterial.
Legal matters. We may from time to time become a party to various legal proceedings or claims that arise in the ordinary course of business. As of June 30, 2022 and December 31, 2021, we accrued approximately $138,000 and $146,000, respectively, related to various matters.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 II, Item 1A of this Quarterly Report, the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2021 and the cautionary information regarding forward-looking statements 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 intravenous (“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 ECG with dynamic gradient filtering; wireless SpO2 using Masimo® algorithms; non-magnetic respiratory 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 December 31, 2021, our direct U.S. sales force consisted of 21 field sales representatives, 3 regional sales directors and supplemented by 4 clinical application specialists. Internationally, we have distribution agreements with independent distributors selling our products. As of June 30, 2022 our direct U.S. sales force consisted of 22 field sales representatives, 3 regional sales directors and supplemented by 4 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. We also enter into agreements with integrated delivery health systems and healthcare supply contracting companies in the U.S. Our agreements with healthcare supply contracting companies enable us to sell and distribute our products and services to their member hospitals. Under these agreements, we are required to pay these group purchasing organizations (“GPOs”) a fee of three percent of the sales of our products to their member hospitals.
Financial Highlights
For the second quarter ended June 30, 2022, our revenue increased $2.9 million, or 29.7 percent, to $12.7 million, compared to $9.8 million for the second quarter last year. Income before the provision for income taxes was $4.2 million for the second quarter
2022, compared to $1.9 million for the second quarter last year. Net income was $3.2 million, or $0.26 per diluted share in the second quarter ended June 30, 2022, compared to $1.5 million, or $0.12 per share in the second quarter last year.
For the remainder of 2022, we expect higher revenue when compared to the same period in 2021 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 2021 primarily due to higher sales and marketing, and general and administrative expenses.
Application of Critical Accounting Policies
We prepare our financial statements in conformity with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and use assumptions that affect the reported amounts of assets, liabilities and related disclosures at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
We believe revenue recognition, accounts receivable, allowance for doubtful accounts, inventory valuation, product warranties, stock compensation, and income taxes are critical accounting policies requiring the use of significant estimates, assumptions, and judgments.
These critical accounting policies are described in more detail in our Annual Report filed on Form 10-K, under Management’s Discussion and Analysis and Results of Operations. Except as disclosed in Note 1 to the unaudited condensed financial statements contained herein related to the adoption of recent accounting pronouncements, there have been no changes to these policies during the three and six months ended June 30, 2022.
The use of different estimates, assumptions, and judgments could have a material effect on the reported amounts of assets, liabilities and related disclosures as of the date of the financial statements and revenue and expenses during the reporting period.
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.
Percent of Revenue
Three Months
Six Months
Ended June 30,
100.0
%
20.3
25.3
22.0
24.4
79.7
74.7
78.0
75.6
18.9
26.1
20.4
26.2
22.9
25.2
23.9
25.5
5.2
4.6
4.7
4.9
47.0
55.9
49.0
56.6
32.8
18.8
28.9
19.0
Other income, net
0.1
0.0
32.9
19.1
7.4
4.0
6.0
4.1
15.0
19
Three and Six Months Ended June 30, 2022 and 2021
Revenue by Geographic Region
Revenue by Type
For the three months ended June 30, 2022, revenue increased $2.9 million, or 29.7 percent, to $12.7 million from $9.8 million for the same period in 2021.
Revenue from sales in the U.S. increased $2.8 million, or 34.5 percent, to $10.8 million for the second quarter 2022, from $8.0 million for the second quarter 2021. Revenue from sales internationally increased $0.1 million, or 7.8 percent, to $1.9 million for the second quarter 2022, from $1.8 million for the second quarter 2021. Domestic sales accounted for 85.0 percent of revenue for the second quarter 2022, compared to 82.0 percent for the second quarter 2021.
Revenue from sales of devices increased $3.0 million, or 50.4 percent, to $8.8 million for the three months ended June 30, 2022, from $5.8 million for the same period in 2021.
The average selling price (ASP) of our MRI compatible IV infusion pump system during the three months ended June 30, 2022 was approximately $37,400, compared to approximately $41,600 for the same period in 2021. The decrease in ASP is the result of higher international unit sales and an unfavorable product sales mix when compared to the same period in 2021.
The average selling price of our MRI compatible patient vital signs monitoring system during the three months ended June 30, 2022 was approximately $48,700, compared to approximately $39,700 for the same period in 2021. The increase in ASP relates to higher domestic unit sales when compared to the same period in 2021, and price increases we began implementing during the second half of 2021.
Revenue from sales of our disposables, service and other decreased $(0.1) million, or 1.7 percent, to $3.4 million for the three months ended June 30, 2022, from $3.5 million for the same period in 2021. Revenue from the amortization of extended warranty agreements was consistent at $0.5 million for the three months ended June 30, 2022 and 2021.
For the six months ended June 30, 2022, revenue increased $6.0 million, or 31.5 percent, to $25.0 million from $19.0 million for the same period in 2021.
Revenue from sales in the U.S. increased $6 million, or 35.8 percent, to $21 million for the six months ended June 30, 2022, from $15.0 million for the same period 2021. Revenue from sales internationally increased $0.5 million, or 13.9 percent, to $4.2 million for the second quarter 2022, from $3.7 million for the second quarter 2021. Domestic sales accounted for 83.1 percent of revenue for the second quarter 2022, compared to 80.5 percent for the second quarter 2021.
20
Revenue from sales of devices increased $5.3 million, or 44.5 percent, to $17.2 million for the six months ended June 30, 2022, from $11.9 million for the same period in 2021.
The average selling price of our MRI compatible IV infusion pump system during the six months ended June 30, 2022 was approximately $35,700 compared to approximately $35,900 for the same period in 2021. The decrease in ASP is the result of higher international unit sales, partially offset by a favorable product sales mix when compared to the same period in 2021.
The average selling price of our MRI compatible patient vital signs monitoring system during the six months ended June 30, 2022 was approximately $41,700, compared to approximately $39,100 for the same period in 2021. The increase in ASP relates to higher domestic unit sales when compared to the same period in 2021, and price increases we began implementing during the second half of 2021.
Revenue from sales of our disposables, service and other increased $0.6 million, or 10.2 percent, to $6.7 million for the six months ended June 30, 2022, from $6.1 million for the same period in 2021. Revenue from the amortization of extended warranty agreements remained consistent at $1.0 million for the six months ended June 30, 2022 and 2021.
Cost of Revenue and Gross Profit
Gross profit percentage
For the three months ended June 30, 2022 and 2021, cost of revenue increased $0.1 million, or 4.2 percent to $2.6 million from $2.5 million for the same period 2021. Gross profit increased $2.8 million, or 38.3 percent, to $10.1 million for the second quarter 2022 from $7.3 million for the same period in 2021. Gross profit margin was 79.7 percent for second quarter 2022, compared to 74.7 percent for the second quarter 2021. The increase in gross profit margin is primarily due to favorable geographic sales mix, price increases we began implementing during the second half of 2021, and inventory standards cost update offsetting cost of revenue.
For the six months ended June 30, 2022, cost of revenue increased $0.9 million, or 18.8 percent, to $5.5 million from $4.6 million for the same period last year. Gross profit increased $5.1 million, or 35.6 percent, to $19.5 million for the six months ended June 30, 2022 from $14.4 million for the same period in 2021. Gross profit margin was 78.0 percent for six months ended June 30, 2022, compared to 75.6 percent for the same period in 2021. The increase in gross profit and gross profit margin is primarily due to a favorable geographic sales mix, price increases we began implementing during the second half of 2021, inventory standards cost update offsetting cost of revenue, partially offset by unfavorable inventory reserve adjustments and overhead variances.
Operating Expenses
Percentage of revenue
21
General and Administrative
For the three months ended June 30, 2022, general and administrative expense decreased $(0.2) million, or 6.3 percent, to $2.4 million from $2.6 million for the same period last year. This decrease is primarily due to reduced legal and professional expenses.
For the six months ended June 30, 2022, general and administrative expense increased $0.1 million, or 2.5 percent, to $5.1 million from $5.0 million for the same period last year. This increase is primarily due to higher payroll and benefits expenses offset by reduced legal and professional expenses.
Sales and Marketing
For the three months ended June 30, 2022, sales and marketing expense increased $0.4 million, 17.7 percent, to $2.9 million from $2.5 million for the same period last year. This increase is primarily due to higher sales commissions, sales activities expenses, and payroll and benefits expenses.
For the six months ended June 30, 2022, sales and marketing expense increased $1.1 million, 23.3 percent, to $5.9 million from $4.8 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, 2022, research and development expense increased $0.2 million, 46.1 percent, to $0.7 million from $0.5 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 next generation pump.
For the six months ended June 30, 2022, research and development expense increased $0.3 million, 27.1 percent, to $1.2 million from $0.9 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 next generation pump.
Other Income / Expense, Net
Other expense, net consists of interest income, foreign currency gains and losses, and other miscellaneous income. For the three months ended June 30, 2022 and 2021, we reported other expense of approximately $13,000. There were no significant changes in these accounts during the three months ended June 30, 2022, compared to the same quarter last year.
For the six months ended June 30, 2022 and 2021, we reported expense of (1,812) and income of 7,532 respectively. The change is primarily due to interest income received in 2021 related to investments.
Income Taxes
For the three and six months ended June 30, 2022, we recorded a provision for income tax expense of $938,631 and $1,511,926 respectively. Our effective tax rate was 22.5 percent and 20.9 percent respectively and differed from the U.S. Federal statutory rate primarily due to U.S. Federal income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.
For the three and six months ended June 30, 2021, we recorded a provision for income tax expense of $387,727 and $772,221, respectively. Our effective tax rate was 20.9 percent and 21.3 percent respectively, and differed from the U.S. Federal statutory rate primarily due to U.S. state income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.
22
We file tax returns in the United States Federal jurisdiction and many U.S. state jurisdictions. 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 2017 and subsequent years and various other U.S. state income taxes for 2016 and subsequent years.
Liquidity and Capital Resources
Our principal sources of liquidity have historically been our cash and cash equivalents balances, our investments, cash flow from operations and access to the financial markets. Our principal uses of cash are operating expenses, working capital requirements and capital expenditures.
As of June 30, 2022, we had cash and investments of $52.2 million, stockholders’ equity of $65.9 million, and working capital of $62.4 million. During the first six months ended June 30, 2022, we paid a special dividend of $12.6 million to our shareholders. As of December 31, 2021, we had cash and investments of $62.5 million, stockholders’ equity of $72.2 million, and working capital of $69.4 million.
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. 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.
3,065,405
Net cash (used in)/ provided by investing activities
Cash provided by operating activities decreased $(1.4) million, to $3.1 million for the six months ended June 30, 2022, compared to $4.5 million for the same period in 2021. During the six months ended June 30, 2022, cash provided by operations was positively impacted by cash inflows from prepaid income taxes, and negatively impacted by cash outflows from prepaid expenses and inventory purchases.
Cash used in investing activities increased $0.9 million, to $(0.3) million for the six months ended June 30, 2022, compared to $0.6 million for the same period in 2021. During the six months ended June 30, 2022, cash provided by investing activities was positively impacted by cash inflows from maturities of securities, and negatively impacted by capital expenditures and capitalized intangible assets.
Cash used in financing activities was approximately $(12.6) million for the six months ended June 30, 2022, compared to approximately $(32,000) for the same period in 2021. This change is primarily due to a special dividend payment of $12.6 million to our shareholders during the six months ended June 30, 2022.
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 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, 2022 and December 31, 2021, 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.
23
Contractual Obligations
There have been no material changes outside the ordinary course of business to our contractual obligations and commercial commitments since December 31, 2021.
See Note 1 to the unaudited condensed financial statements contained herein for a full description of recent accounting pronouncements including the respective expected dates of adoption and status of evaluation of expected effects on results of our operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk
We have foreign currency risks related to our cost of revenue denominated in currencies other than the U.S. Dollar, principally the Japanese yen (“Yen”). The volatility of the Yen depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains and losses related to revaluing Yen denominated accounts payable balances. In the event our Yen denominated accounts payable or expenses increase, our operating results may be affected by fluctuations in the Yen exchange rate. If the U.S. Dollar uniformly increased or decreased in strength by 10 percent relative to the Yen, our net income would have correspondingly increased or decreased by an immaterial amount for the three and six months ended June 30, 2022 and 2021.
Interest Rate Risk
When able, we invest excess cash in bank money-market funds, corporate debt securities or discrete short-term investments. The fair value of our cash equivalents and short-term investments is sensitive to changes in the general level of interest rates in the U.S., and the fair value of these investments will decline if market interest rates increase. As of June 30, 2022, we had no investments as the last of our corporate bonds matured on April 18, 2022. Our excess cash is held in interest bearing accounts.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (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, 2022. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2022 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 on Form 10-Q that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We may from time to time become party to various legal proceedings or claims that arise in the ordinary course of business. Our management reviews these matters if and when they arise, and believes that the resolution of any such matters currently known will not have a material effect on our results of operations or financial position.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In evaluating the Company and its business, you should carefully consider the information included in this Quarterly Report on Form 10-Q and the factors discussed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as in other documents we file with the SEC. Except as described below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information
Item 6. Exhibits
ExhibitNumber
Description of Document
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 I.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document
104**
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included as part of this Exhibit 101 inline XBRL Document set
*
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
**
In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 5, 2022
/s/ Roger Susi
By:
Roger Susi
Its:
Chief Executive Officer and President
(Principal Executive Officer and Authorized Officer)
/s/ John Glenn
John Glenn
Chief Financial Officer
(Principal Financial and Accounting Officer)