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, 2023
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 12,602,673 shares of common stock, par value $0.0001 per share, outstanding as of July 31, 2023.
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, 2023 (Unaudited) and December 31, 2022
(b) Condensed Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)
6
(c) Condensed Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)
7
(d) Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)
8
(e) Condensed Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (Unaudited)
9
(f) Notes to Unaudited Condensed Financial Statements
10
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3
Quantitative and Qualitative Disclosures About Market Risk
25
Item 4
Controls and Procedures
Part II
Other Information
27
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
28
Signatures
29
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,
2023
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
45,822,834
57,960,864
Accounts receivable, net of allowance for doubtful accounts of $331,403 as of June 30, 2023, and $160,498 as of December 31, 2022
11,082,213
13,274,521
Inventory, net
8,415,080
5,369,233
Prepaid expenses and other current assets
770,647
630,960
Prepaid income taxes
—
254,093
Total current assets
66,090,774
77,489,671
Property and equipment, net
8,720,273
2,399,812
Intangible assets, net
2,353,773
2,069,439
Operating lease right-of-use asset
2,247,667
2,205,286
Deferred tax asset, net
1,766,383
700,867
Other assets
252,161
648,672
Total assets
81,431,031
85,513,747
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
2,552,076
1,799,316
Accrued payroll and benefits
2,332,643
2,871,890
Other accrued taxes
217,496
121,919
Warranty reserve
105,479
94,030
Deferred revenue
1,714,067
3,373,122
Current portion of operating lease liabilities
413,745
293,466
Other current liabilities
250,000
Total current liabilities
7,585,506
8,553,743
3,013,165
1,375,197
Operating lease liabilities, less current portion
1,833,922
1,911,820
Total liabilities
12,432,593
11,840,760
Stockholders’ equity:
Common stock; $0.0001 par value; 31,500,000 shares authorized; 12,601,541 shares issued and outstanding as of June 30, 2023, and 12,591,004 shares issued and outstanding as of December 31, 2022
1,260
1,259
Additional paid-in capital
27,369,898
26,407,446
Retained earnings
41,627,280
47,264,282
Total Stockholders' Equity
68,998,438
73,672,987
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
16,130,396
12,721,569
31,605,480
25,032,279
Cost of revenue
3,943,904
2,581,806
7,697,535
5,512,992
Gross profit
12,186,492
10,139,763
23,907,945
19,519,287
Operating expenses:
General and administrative
3,313,080
2,402,795
7,233,591
5,118,745
Sales and marketing
2,948,425
2,907,788
5,948,403
5,977,344
Research and development
961,952
662,599
1,755,666
1,181,694
Total operating expenses
7,223,457
5,973,182
14,937,660
12,277,783
Income from operations
4,963,035
4,166,581
8,970,285
7,241,504
Other income (expense), net
335,387
13,102
677,796
(1,812)
Income before provision for income taxes
5,298,422
4,179,683
9,648,081
7,239,692
Provision for income tax expense
1,118,582
938,631
2,062,171
1,511,926
Net income
4,179,840
3,241,052
7,585,910
5,727,766
Net income per share:
Basic
0.33
0.26
0.60
0.46
Diluted
0.45
Weighted average shares outstanding:
12,596,032
12,560,812
12,594,541
12,556,837
12,723,017
12,632,755
12,706,608
12,641,424
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive (loss) income:
Change in fair value of available-for-sale securities, net of tax expense (benefit) of $0 and $(22), respectively
(68)
(10,953)
Realized gain on available-for-sale securities reclassified to net income, net of tax expense of $0 and $0 respectively
(6,059)
Other comprehensive loss
(6,127)
(17,012)
Comprehensive income
3,234,925
5,710,754
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional
Other
Common Stock
Paid-in
Retained
Comprehensive
Stockholders’
Shares
Amount
Capital
Earnings
Income
Equity
Balances, December 31, 2022
12,591,004
3,406,070
Dividends paid ($1.05 per share)
(13,222,907)
Other comprehensive (loss)
(4)
Stock-based compensation expense
533,643
Net share settlement of restricted stock units
3,572
(49,878)
Balances, March 31, 2023
12,594,576
26,891,211
37,447,441
64,339,911
568,453
5,965
1
(97,106)
(97,105)
Exercise of stock options
1,000
7,339
Balances, June 30, 2023
12,601,541
41,627,281
Balances, December 31, 2021
12,544,024
1,254
25,160,618
46,994,922
17,012
72,173,806
2,486,713
Dividends paid ($1.00 per share)
(12,559,127)
(10,885)
453,360
3,879
(67,381)
(67,380)
12,566
71,947
71,948
Balances, March 31, 2022
12,560,469
1,256
25,618,544
36,922,508
6,127
62,548,435
121,003
556
(5,726)
Balances, June 30, 2022
12,561,025
25,733,821
40,163,560
65,898,637
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
170,905
21,370
Change in provision for excess and obsolete inventory
167,383
19,824
Depreciation and amortization
369,908
928,101
Loss (Gain) on disposal of property and equipment
3,852
(4,894)
Stock-based compensation
1,102,096
574,363
Deferred income taxes, net
(1,065,516)
(144,948)
Loss on maturities of investments
(8,025)
Changes in operating assets and liabilities:
Accounts receivable
2,021,403
(3,295,542)
Inventory
(4,212,765)
(587,502)
57,568
(451,276)
541,548
10,419
1,709,063
(15,622)
(539,247)
(545,393)
95,577
95,055
11,449
(8,111)
(363,379)
(253,074)
(7,995)
1,010,890
Net cash provided by operating activities
8,159,848
3,065,406
Investing activities:
Proceeds from maturities of investments
500,000
Purchases of property and equipment
(6,600,521)
(371,935)
Capitalized intangible assets
(334,807)
(475,198)
Net cash used in investing activities
(6,935,328)
(347,133)
Financing activities:
Dividends paid
Proceeds from exercises of stock options
71,949
Taxes paid related to the net share settlement of equity awards
(146,983)
(73,106)
Net cash used in financing activities
(13,362,551)
(12,560,284)
Net decrease in cash and cash equivalents
(12,138,031)
(9,842,011)
Cash and cash equivalents, beginning of period
61,999,550
Cash and cash equivalents, end of period
45,822,833
52,157,539
Supplemental disclosure of cash flow information:
Cash paid for income taxes
2,756,152
757,137
ROU asset recognized in exchange for new lease obligation
227,982
Operating and short-term lease payments recorded within cash flow provided by operating activities
324,362
257,117
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 and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, and other interim periods, or future years or periods.
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, 2022. 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 FDA 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.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
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. We have adopted previously mentioned ASU starting January 1, 2023 and it did not result in 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
12,949,526
10,816,691
24,928,050
20,796,032
International
3,180,870
1,904,878
6,677,430
4,236,247
Total revenue
Revenue information by type is as follows:
Devices:
MRI Compatible IV Infusion Pump Systems
4,522,568
3,853,016
10,061,383
7,134,955
MRI Compatible Patient Vital Signs Monitoring Systems
6,128,718
4,921,619
10,825,536
10,116,370
Ferro Magnetic Detection Systems
183,190
480,779
Total Devices revenue
10,834,476
8,774,635
21,367,698
17,251,325
Disposables, services and other
4,815,870
3,430,005
9,250,612
6,748,907
Amortization of extended warranty agreements
480,050
516,929
987,170
1,032,047
11
Contract Liabilities
Our contract liabilities consist of:
Advance payments from customers
342,292
896,617
Shipments in-transit
19,833
14,696
Extended warranty agreements
4,365,107
3,837,006
Total
4,727,232
4,748,319
Changes in the contract liabilities during the periods presented are as follows:
Deferred
Contract liabilities, December 31, 2022
Increases due to cash received from customers
2,464,337
Decreases due to recognition of revenue
(2,485,424)
Contract liabilities, June 30, 2023
Contract liabilities, December 31, 2021
4,232,439
1,969,841
(2,288,798)
Contract liabilities, June 30, 2022
3,913,482
Capitalized Contract Costs
Our capitalized contract costs totaled $199,776 and $340,044 as of June 30, 2023 and December 31, 2022, respectively, and are classified as other assets on the unaudited condensed balance sheet.
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
19,333
19,168
18,893
22,784
Restricted stock units
69,112
52,775
57,610
61,803
Performance-based restricted stock units
38,540
35,564
Weighted-average shares outstanding — Diluted
Basic net income per share
Diluted net income per share
12
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
11,141
25,197
4 — Inventory, net
Inventory consists of:
Raw materials
7,106,304
4,827,113
Work in process
754,670
369,761
Finished goods
960,776
411,647
Inventory before allowance for excess and obsolete
8,821,750
5,608,521
Allowance for excess and obsolete
(406,670)
(239,288)
13
5 — Property and Equipment, net
Property and equipment consist of:
Land
6,200,000
Computer software and hardware
1,271,277
1,121,455
Furniture and fixtures
1,695,772
1,573,587
Leasehold improvements
266,082
259,146
Machinery and equipment
2,419,147
2,210,181
Fixed assets in-process
617,760
665,773
12,470,038
5,830,142
Accumulated depreciation
(3,749,765)
(3,430,330)
Depreciation expense of property and equipment was $162,121 and $142,710 for the three months ended June 30, 2023 and 2022, respectively, and $319,435 and $277,581 for the six months ended June 30, 2023 and 2022, respectively.
Land Acquisition
On February 2, 2023, the Company entered into a reinstatement and amendment to the previously announced sale and purchase agreement with O Property, Ltd., a Florida limited partnership dated as of November 1, 2022, pursuant to which the parties agreed to consummate a sale of real property located in Orange County, Florida. Pursuant to the terms of the Reinstatement, the parties consummated the sale of approximately 26.5 acres of land to the Company for a purchase price of $6,200,000. The property was acquired as a site for future development of manufacturing, research labs, and office space to accommodate our increased operations and anticipated growth.
Property and equipment, net, information by geographic region is as follows:
8,528,821
2,248,308
191,452
151,504
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.
14
6 — Intangible Assets, net
The following table summarizes the components of intangible asset balances:
Patents — in use
321,874
321,873
Patents — fully amortized
70,164
Patents — in process
127,108
123,153
Internally developed software — in use
872,218
Internally developed software — in process
1,820,173
1,489,322
Trademarks
27,697
3,239,234
2,904,427
Accumulated amortization
(885,461)
(834,988)
Amortization expense of intangible assets was $25,236 and $25,393 for the three months ended June 30, 2023 and 2022, respectively, and $50,473 and $50,649 for the six months ended June 30, 2023 and 2022, respectively.
Expected annual amortization expense for the remaining portion of 2023 and the next five years related to intangible assets is as follows (excludes in process intangible assets):
Six months ending December 31,2023
50,473
2024
100,544
2025
97,374
2026
85,658
2027
11,945
2028
9,343
7 — Fair Value Measurements
The fair values of cash equivalents, accounts receivables, net and accounts payable approximate their carrying amounts due to their short duration.
As of June 30, 2023 we did not have any asset or liabilities subject to recurring fair value measurements.
15
8 — Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, for the three months ended June 30, 2023 and 2022 are as follows:
Unrealized (Losses)
Gains on
Available-For-Sale
Securities
Balance at March 31, 2023
(Gain) Loss on available-for-sale securities, net
Reclassification realized in net earnings
Balance at June 30, 2023
Balance at March 31, 2022
Balance at June 30, 2022
The components of accumulated other comprehensive income, net of tax, for the six months ended June 30, 2023 and 2022 are as follows:
Balance at December 31, 2022
Balance at December 31, 2021
9 — Stock-Based Compensation
Stock-based compensation was recognized as follows in the unaudited Condensed Statements of Operations:
62,430
7,955
124,173
87,379
291,346
10,604
580,730
207,374
169,160
62,253
306,367
199,675
45,518
40,191
90,827
79,935
568,454
1,102,097
As of June 30, 2023, we had $3,326,259 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.46 years. As of June 30, 2023, we had
16
$730,618 of unrecognized compensation cost related to unvested performance-based restricted stock units, which is expected to be recognized over a weighted-average period of 2.21 years.
The following table presents a summary of our equity award activity for the six months ended June 30, 2023 (shares):
Performance
Based
Stock
Restricted
Options
Stock Units
Outstanding beginning of period
24,010
151,337
27,884
Awards granted
3,656
Awards exercised/vested
(1,000)
(13,001)
Awards canceled/ forfeited
(70)
Outstanding end of period
23,010
141,922
10 — Income Taxes
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. 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, 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.
As of June 30, 2023 and December 31, 2022, 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 Federal and certain U.S. state income taxes for 2019 and subsequent years.
11 — Leases
We have entered into operating lease contracts for our manufacturing plant, office space, and various office equipment with 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 three months ended June 30, 2023 and 2022, the Company paid Susi, LLC $127,817 and $118,504 respectively. For the six months ended June 30, 2023 and 2022, the Company paid Susi, LLC $255,635 and $237,008 respectively. For the year ended December 31, 2022, the Company paid Susi, LLC $492,643 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
17
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 6.8 years as of June 30, 2023. This lease agreement does not contain any residual value guarantee or material restrictive covenants.
In February 2023, we entered into two, two-year, non-cancelable operating leases with non-related parties for additional office space in Winter Springs, Florida. Pursuant to the lease terms the total monthly base rent is $10,055. For the three months ended June 30, 2023 and 2022, the Company paid $30,165 and $0 respectively. For the six months ended June 30, 2023 and 2022, the Company paid $52,975 and $0 respectively. Under the terms of the lease, we are responsible for insurance and maintenance expenses. Pursuant to the contract terms, the leases will expire February 2025 and do not contain any residual value guarantee or material restrictive covenants.
We will reassess the lease accounting terms and assumptions once the details regarding completion of a new manufacturing facility and planned departure of the current primary facility is finalized.
Operating lease cost recognized in the unaudited Condensed Statements of Operations is as follows:
58,086
53,854
116,172
107,708
92,206
54,710
183,676
109,420
3,251
3,014
6,501
6,028
9,006
8,350
18,013
16,700
162,549
119,928
239,856
Lease costs for short-term leases were immaterial for the three and six months ended June 30, 2023, and 2022.
Maturity of our operating lease liability as of June 30, 2023, is as follows:
Six months ending December 31, 2023
269,657
535,954
415,294
409,596
Thereafter
594,446
Total lease payments
2,634,543
Imputed interest
(386,876)
Present value of lease liability
12 — Commitments and Contingencies
Purchase commitments. We had various purchase orders for goods or services totaling $14,802,094 and $8,021,403 as of June 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, we had accrued approximately $250,000 and $0, respectively, related to various matters.
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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, 2022 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 June 30, 2023 our direct U.S. sales force consisted of 28 field sales representatives, 3 regional sales directors and supplemented by 5 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, 2023, our revenue increased $3.4 million, or 26.8 percent, to $16.1 million, compared to $12.7 million for the second quarter last year. Income before the provision for income taxes was $5.3 million for the second quarter 2023, compared to $4.2 million for the second quarter last year. Net income was $4.2 million, or $0.33 per diluted share in the second quarter ended June 30, 2023, compared to $3.2 million, or $0.26 per share in the second quarter last year.
For the remainder of 2023, we expect higher revenue when compared to the same period in 2022 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 2022 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 six months ended June 30, 2023.
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.
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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
100.0
%
24.5
20.3
24.4
22.0
75.5
79.7
75.6
78.0
20.5
18.9
22.9
20.4
18.3
18.8
23.9
6.0
5.2
5.6
4.7
44.8
47.0
47.3
49.0
30.8
32.8
28.4
28.9
2.1
0.1
(0.0)
32.9
30.5
6.9
7.4
6.5
25.9
25.5
24.0
Three and Six Months Ended June 30, 2023 and 2022
Revenue by Geographic Region
Revenue by Type
For the three months ended June 30, 2023, revenue increased $3.4 million, or 26.8 percent, to $16.1 million from $12.7 million for the same period in 2022. This is attributed to the increase in our Patient Vital Signs Monitor and disposable sales as well as the release of our Ferro Magnetic Detection System.
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Revenue from sales in the U.S. increased $2.1 million, or 19.7 percent, to $12.9 million for the second quarter 2023, from $10.8 million for the second quarter 2022. Revenue from sales internationally increased $1.3 million, or 67.0 percent, to $3.2 million for the second quarter 2023, from $1.9 million for the second quarter 2022. Domestic sales accounted for 80.3 percent of revenue for the second quarter 2023, compared to 85.0 percent for the second quarter 2022.
Revenue from sales of devices increased $2.1 million, or 23.5 percent, to $10.8 million for the three months ended June 30, 2023, from $8.8 million for the same period in 2022.
Revenue from sales of our disposables, service and other increased $1.4 million, or 40.4 percent, to $4.8 million for the three months ended June 30, 2023, from $3.4 million for the same period in 2022. Revenue from the amortization of extended warranty agreements was consistent at $0.5 million for the three months ended June 30, 2023 and 2022.
For the six months ended June 30, 2023, revenue increased $6.6 million, or 26.3 percent, to $31.6 million from $25.0 million for the same period in 2022. This is attributed to the increase in our IV Infusion Pump System, and disposable sales as well as the release of our Ferro Magnetic Detection System.
Revenue from sales in the U.S. increased $4.1 million, or 19.9 percent, to $24.9 million for the six months ended June 30, 2023, from $20.8 million for the same period 2022. Revenue from sales internationally increased $2.4 million, or 57.6 percent, to $6.7 million for the six months ended 2023, from $4.2 million for the six months ended 2022. Domestic sales accounted for 78.9 percent of revenue for the second quarter 2023, compared to 83.1 percent for the six months ended 2022.
Revenue from sales of devices increased $4.1 million, or 23.9 percent, to $21.4 million for the six months ended June 30, 2023, from $17.3 million for the same period in 2022.
Revenue from sales of our disposables, service and other increased $2.5 million, or 37.1 percent, to $9.3 million for the six months ended June 30, 2023, from $6.7 million for the same period in 2022. Revenue from the amortization of extended warranty agreements was consistent at $1.0 million for the six months ended June 30, 2023 and 2022.
Cost of Revenue and Gross Profit
Gross profit percentage
For the three months ended June 30, 2023 and 2022, cost of revenue increased $1.4 million, or 52.8 percent to $3.9 million from $2.6 million for the same period 2022. Gross profit increased $2.0 million, or 20.2 percent, to $12.2 million for the second quarter 2023 from $10.1 million for the same period in 2022. Gross profit margin was 75.5 percent for second quarter 2023, compared to 79.7 percent for the second quarter 2022. The decrease in gross profit margin is primarily due to an unfavorable overhead variance, sales mix, and increased raw material costs due to inflation.
For the six months ended June 30, 2023, cost of revenue increased $2.2 million, or 39.6 percent, to $7.7 million from $5.5 million for the same period last year. Gross profit increased $4.4 million, or 22.5 percent, to $23.9 million for the six months ended June 30, 2023 from $19.5 million for the same period in 2022. Gross profit margin was 75.6 percent for six months ended June 30, 2023, compared to 78.0 percent for the same period in 2022. The decrease in gross profit margin is primarily due to an unfavorable geographic sales mix, increased raw material costs, and overhead variances. International revenue increased to 21.1 percent from 16.9 respectively for the six months ending June 30, 2023 and 2022.
22
Operating Expenses
Percentage of revenue
General and Administrative
For the three months ended June 30, 2023, general and administrative expense increased $0.9 million, or 37.9 percent, to $3.3 million from $2.4 million for the same period last year. This increase is primarily due to higher legal and professional expenses and increased payroll and benefit expenses.
For the six months ended June 30, 2023, general and administrative expense increased $2.1 million, or 41.3 percent, to $7.2 million from $5.1 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, 2023, sales and marketing expense decreased $0.04 million, or 1.4 percent, to $2.9 million from $2.9 million for the same period last year. This decrease is primarily due to lower sales commissions, sales activities expenses, and payroll and benefits expenses.
For the six months ended June 30, 2023, sales and marketing expense decreased $0.03 million, 0.5 percent, to $5.9 million from $6.0 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 and six months ended June 30, 2023 and 2022, research and development expense increased $0.3 million, or 45.2 percent to $1.0 million from $0.7 million for the same period last year. This is primarily due to higher consulting expenses related to our next generation pump in development, and payroll and benefits expenses offset by reductions in prototype expense.
For the six months ended June 30, 2022, research and development expense increased $0.6 million, 48.6 percent, to $1.8 million from $1.2 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, 2023, other income net increased $0.3 million, to $0.3 million from $0.13 million for the same period last year. This increase is due to interest received on money market fund investments.
For the six months ended June 30, 2023 and 2022, we reported other income, net, of $677,796 and an expense of $(1,812) respectively. The change is primarily due to interest received in 2023 on money market fund investments.
23
Income Taxes
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. 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, 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.
As of June 30, 2023, and December 31, 2022, 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.
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, capital expenditures and dividend payments, if any.
As of June 30, 2023, we had cash and cash equivalents of $45.8 million, stockholders’ equity of $68.9 million, and working capital of $58.5 million. As of December 31, 2022, we had cash and investments of $57.9 million, stockholders’ equity of $73.7 million, and working capital of $68.9 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 have acquired land from an unrelated party and plan to make subsequent improvements thereon in the next two years to accommodate our increased operations and expand capacity. We anticipate using available cash and cash equivalents 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.
8,159,849
Cash provided by operating activities increased $5.1 million, to $8.2 million for the six months ended June 30, 2023, compared to $3.1 million for the same period in 2022. During the three months ended June 30, 2023, cash provided by operations was positively impacted by net income and cash inflows from collection of accounts receivable and negatively impacted by cash outflows to purchase inventory, and a decrease in accrued payroll from the prior period.
Cash used in investing activities increased $6.6 million, to $6.9 million for the six months ended June 30, 2023, compared to $0.3 million for the same period in 2022. During the six months ended June 30, 2023, cash used in
24
investing was primarily the result of the $6.2 million land purchase to be used for future manufacturing, research lab and office space.
Cash used in financing activities increased $0.8 million, to $13.4 for the six months ended June 30, 2023, compared to approximately $12.6 for the same period in 2022. In both periods, the company paid special dividends to our shareholders.
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, 2023 and December 31, 2022, 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, 2022.
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, 2023 and 2022.
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, 2023. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2023 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.
26
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, 2022, 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, 2022.
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**
Inline 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 03, 2023
/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)