KORU Medical Systems Announces 2020 First Quarter Financial Results

“We reported a strong Q1 2020 with net sales, net income, and Adjusted EBITDA rising from Q1 2019,” said Don Pettigrew, President and CEO. “We are an essential business under current New York state guidelines, and experienced minimal operational disruptions from the impact of COVID-19 in the quarter. I am very proud of how our team has responded to the COVID-19 crisis with their commitment, resiliency, and continuing support of our patients and healthcare partners. Our products allow high-risk patients with immune diseases and other chronic conditions to receive treatment at-home and keep them out of institutional settings – important advantages during these challenging times.”

Q1 2020 Overview

The Company continued in Q1 2020 to capitalize on the growth of its primary end markets of Primary Immune Deficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”) while pursuing longer-term growth initiatives, including broadening pharmaceutical relationships with an emphasis on the numerous new subcutaneous drugs coming to market, expanding indications beyond its primary disease states, and pursuing customers in new geographies.

Net sales rose 27% to $6.3 million in Q1 2020 from $5.0 million in Q1 2019, with growth in all product categories (pumps, needle sets, and tubing). We believe this growth was primarily driven by an increased utilization of our products by PIDD patients and ongoing expansion of Hizentra® into CIDP. Net sales for Q1 2020 also reflected higher clinical trial sales compared to Q1 2019.

Gross profit in Q1 2020 rose 24% to $3.8 million from $3.1 million in Q1 2019, primarily due to increased sales volume. Gross margin of 60% declined from 61% in Q1 2019, reflecting a non-cash $0.1 million obsolescence reserve related to a discontinued legacy product and an increase in overtime, partially offset by price increases; excluding the charge, gross margin in Q1 2020 was 62%.

Total operating expenses for Q1 2020 were stable at $3.2 million when compared to Q1 2019. Selling, general & administrative expenses were $2.8 million, or 44% of net sales, compared to $2.5 million, or 50% of net sales in Q1 2019. Litigation costs declined to $0.1 million from $0.5 million in Q1 2019, reflecting a decreased level of activity with respect to ongoing legal activity with our competitor. Research and development expenses increased to $0.3 million from $0.1 million in Q1 2019, mostly due to increased salary and related benefits due to higher headcount as we continue our commitment to development initiatives.

Net income for Q1 2020 was $0.4 million, or $0.01 per share, as compared to a net loss of $0.1 million, or $0.00 per diluted share, in the prior year period.

Q1 2020 Adjusted EBITDA rose 38% to $1.3 million from Adjusted EBITDA of $0.9 million in Q1 2019. Adjusted EBITDA excludes from net income: tax expense, depreciation and amortization, interest income, net, operating expenses associated with the Company’s organizational changes prior to March 31, 2019, discontinued product expense, litigation costs, manufacturing initiative expenses, and stock option expense.

COVID-19 Update

The COVID-19 pandemic has spread to the countries in which the Company, its customers and suppliers conduct business. The Company currently qualifies as an “essential business” under New York state guidelines and its operations remain active. We serve patients that are managing chronic medical conditions and remain committed to doing all we can so that these vulnerable individuals have access to our Freedom Integrated Infusion System, which allows them to utilize home-based drug therapy.

The Company has responded to this crisis by developing and deploying a multi-faceted set of operational and financial initiatives designed to minimize disruptions to its normal business activities and preserve its ability to execute its long-term growth objectives.

To protect the safety, health and well-being of employees, customers, suppliers and communities, we are following federal, state, and local guidelines to ensure safety in all facilities, including: increased frequency of cleaning and disinfecting, social distancing practices, requiring most non-production related team members to work remotely where possible, business travel restrictions, cancellation of certain events, and limitations on visitor access to facilities.

The Company is currently continuing to manufacture and ship products on schedule and is managing its inventory and supply chain to minimize disruptions. That said, there can be no assurance that this will continue in the face of COVID-19 uncertainty.

“We are confident that KORU Medical will successfully navigate the challenges of COVID-19 and remain focused on achieving our long-term growth objectives,” continued Mr. Pettigrew. “We have not experienced any material disruption to our business thus far, continue to execute on our Strategic Plan, and are prudently managing working capital and cash flow. Longer term, we believe that the COVID-19 experience may accelerate the shift of drug infusion therapy to an at-home model and further advance the adoption of subcutaneous immunoglobulin drugs.”

Balance Sheet, Liquidity Initiatives and Credit

Cash and equivalents as of March 31, 2020 totaled $7.4 million, a $1.6 million increase from December 31, 2019. Substantially all of the increase was due to a March 2020 draw down of $1.5 million on the Company’s line of credit, the full amount available at that time.

On April 14, 2020, the Company signed a new $3.5 million revolving line of credit with its lender that extended the above-referenced $1.5 million line of credit, and subsequently drew down on the full amount available out of concern about the potential impact of COVID-19.

On April 20, 2020, the Company entered into an agreement with its lender pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, providing for a loan in the principal amount of approximately $1.5 million. The loan was funded on April 27, 2020.

On April 27, 2020, the Company entered into an agreement with a division of its lender, to provide up to $2.5 million in financing for equipment purchases from third party vendors.

Additional information regarding these agreements is available in the Company’s public filings.

To date, the Company has not experienced any significant slowdown in customer payments, and the Company believes that cash on hand and cash expected to be generated from future operating activities will be sufficient to fund its operations for the foreseeable future. That said, there can be no assurance that this will continue in the face of COVID-19 uncertainty.

Non-GAAP Measures

This press release includes the non-GAAP financial measure of “Adjusted EBITDA” that is not in accordance with, nor an alternate to, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on our reported results and, therefore, should not be relied upon as the sole financial measures to evaluate our financial results. The non-GAAP financial measure is meant to supplement, and to be viewed in conjunction with, GAAP financial results. A reconciliation of our non-GAAP measure is included in an attachment to this press release.

Conference Call

Interested parties may participate in the call by dialing:

• (877) 407-9753 (Domestic) or
• (201) 493-6739 (International)

Webcast registration: Click Here

Following the live call, a replay will be available for six months on the Company’s website, www.korumedical.com under “Investor Relations.”

About KORU Medical Systems

KORU Medical Systems develops, manufactures, and commercializes innovative and easy-to-use specialty infusion solutions that improve quality of life for patients around the world. The FREEDOM Syringe Infusion System currently includes the FREEDOM60^® and FreedomEdge^® Syringe Infusion Drivers, Precision Flow Rate Tubing^™ and HIgH-Flo Subcutaneous Safety Needle Sets^™. These devices are used for infusions administered in the home and alternate care settings. For more information, please visit www.korumedical.com.

Forward-looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “will” and “believe.” Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended, and our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which are on file with the SEC and are available on our website at www.korumedical.com/investors and on the SEC website at www.sec.gov. In addition, there are risks and uncertainties with respect to the impact of COVID-19 on our supply chain, operations and financial condition. All information provided in this release and in the attachments is as of May 4, 2020. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.

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