KORU Medical Systems Announces 2020 Second Quarter Financial Results

August 4, 2020 |

12 min read

Repro Med Systems, Inc. dba KORU Medical Systems (NASDAQ: KRMD) (“KORU Medical” or the “Company”) today announced financial results for the second quarter ended June 30, 2020 (“Q2 2020”).

CHESTER, N.Y.--(BUSINESS WIRE)-- Repro-Med Systems, Inc.,. dba KORU Medical Systems (NASDAQ: KRMD) (“KORU Medical” or the “Company”) today announced financial results for the second quarter ended June 30, 2020 (“Q2 2020”).

“We reported a strong Q2 2020, highlighted by a quarterly net sales record of $7.7 million,” said Don Pettigrew, President and CEO. “During the second quarter, we completed a successful public offering, settled our outstanding litigation with our competitor, were added to the broad market Russell 3000^® Index, the Russell 2000^® Index, and Russell Microcap^® Index, and continued to execute against our long-term growth objectives, including success with our strategy to broaden our pharmaceutical industry relationships and pursue clinical trial opportunities. I am extremely proud of the entire KORU Medical team for navigating us through the COVID-19 pandemic and embracing their designation as essential workers supporting the thousands of chronically ill patients who rely on our products.

“We believe that the awareness and diagnosis of Primary Immunodeficiency Diseases and Chronic Inflammatory Demyelinating Polyneuropathy - our primary end markets - is continuing to increase. We believe that COVID-19-related health concerns are driving the ongoing shift from hospital and clinic-based IVIg treatments to home-based subcutaneous Ig therapy, and that the acceleration of this trend is supporting the adoption of KORU Medical’s mechanical, easy-to-use Freedom Integrated Infusion System which allows patients with immune diseases and other chronic conditions to self-administer their Ig drug therapy at home. The growing preference for at-home treatment is also, in our view, encouraging pharmaceutical companies to continue to develop subcutaneous Ig therapies and new drugs that can be administered at home.”

Q2 2020 Overview

Net sales increased 44.1% to $7.7 million in Q2 2020 from $5.3 million in last year’s second quarter, with growth in all product categories (pumps, needle sets, and tubing). We believe this growth was primarily driven by continued demand increases that included clinical trials, as well as increased purchasing to support the trend towards at-home infusion therapy and in response to the uncertainties created by COVID-19.

Gross profit in Q2 2020 rose 41.3% to $4.9 million from $3.5 million in Q2 2019, primarily due to increased sales volume. Gross margin was 63.7% in Q2 2020 as compared to 65.0% in Q2 2019, mostly due to an increase in overtime costs related to COVID-19 absenteeism. Gross margin was 65.4% when adjusted for overtime.

Selling, general & administrative expenses were $3.2 million, or 41.5% of net sales, compared to $2.1 million, or 38.3% of net sales in Q2 2019. The increase was due primarily to the impact of new hires in the second half of last year, severance, a bonus for employee service during the COVID-19 pandemic, increased consulting, distributor fees and other miscellaneous administrative costs, partially offset by lower trade show and travel expenses due to COVID-19 related travel restrictions.

Higher litigation costs in Q2 2020 consisted of a $2.2 million non-cash, stock-based expense associated with the negotiation of and entry into a litigation settlement agreement with a competitor in May 2020. The Company expects expenses related to the competitor litigation will discontinue because of the settlement. Litigation expenses in Q2 2019 were $1.1 million, attributable to the competitor litigation.

Net loss for Q2 2020 was $(1.1) million, or $(0.03) per share, and included the one-time, non-cash litigation settlement expense of $2.2 million. Net income in Q2 2019 was $0.1 million, or $0.00 per share.

Q2 2020 Adjusted EBITDA rose 18.1% to $1.8 million from Adjusted EBITDA of $1.5 million in Q2 2019. Adjusted EBITDA excludes from net income: tax expense, depreciation and amortization, interest income, net, discontinued product expense, litigation costs that consisted of a $2.2 million non-cash, stock-based settlement expense, manufacturing initiative expenses, and stock option expense.

Balance Sheet, Liquidity Initiatives and Credit

Cash and equivalents as of June 30, 2020 totaled $38.1 million, a $32.2 million increase from December 31, 2019. Substantially all of the increase was due to the $26.5 million of net proceeds from the recent capital raise and a $3.5 million draw against the Company’s line of credit.

“This fresh capital allows us to fund our growth initiatives, including commercial expansion, increased clinical trial participation, gross margin enhancement, and new product innovation,” concluded Mr. Pettigrew.

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

Management will host a conference call on Wednesday, August 5, 2020 at 9:00 am ET to discuss the results and business activities. 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,” “should,” “believe” and “in our view.” 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 March 30, 2020, 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 August 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.

REPRO MED SYSTEMS, INC. BALANCE SHEETS

	June 30, 2020			December 31,
	(Unaudited)			2019
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	38,129,349		$	5,870,929
Accounts receivable less allowance for doubtful accounts of $32,645 at June 30, 2020 and December 31, 2019		2,965,902			3,234,521
Inventory		3,667,288			2,388,477
Prepaid expenses		543,482			387,396
TOTAL CURRENT ASSETS		45,306,021			11,881,323
Property and equipment, net		818,064			611,846
Patents, net of accumulated amortization of $319,120 and $288,967 at June 30, 2020 and December 31, 2019, respectively		926,504			807,135
Right of use assets, net		306,101			373,734
Deferred tax asset		334,011			188,241
Other assets		19,812			19,582
TOTAL ASSETS	$	47,710,513		$	13,881,861

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Line of credit payable	$	3,500,000		$	—
Accounts payable		920,006			572,656
Accrued expenses		2,686,200			1,296,612
Accrued payroll and related taxes		523,537			190,265
Accrued tax liability		523,190			204,572
Finance lease liability - current		3,195			5,296
Operating lease liability - current		139,618			136,888
TOTAL CURRENT LIABILITIES		8,295,746			2,406,289
Finance lease liability, net of current portion		1,030			2,646
Operating lease liability, net of current portion		166,483			236,846
TOTAL LIABILITIES		8,463,259			2,645,781

STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 75,000,000 shares authorized, 46,640,120 and 42,239,788 shares issued, 43,902,889 and 39,502,557 shares outstanding at June 30, 2020 and December 31, 2019, respectively		466,401			422,398
Additional paid-in capital		34,886,850			6,293,069
Retained earnings		4,238,207			4,864,817
		39,591,458			11,580,284
Less: Treasury stock, 2,737,231 shares at June 30, 2020 and December 31, 2019, respectively, at cost		(344,204	)		(344,204	)
TOTAL STOCKHOLDERS’ EQUITY		39,247,254			11,236,080
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	47,710,513		$	13,881,861

REPRO MED SYSTEMS, INC. STATEMENTS OF OPERATIONS (UNAUDITED)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019

NET SALES	$	7,708,904		$	5,348,812		$	14,038,913		$	10,323,090
Cost of goods sold		2,799,024			1,873,148			5,340,823			3,799,472
Gross Profit		4,909,880			3,475,664			8,698,090			6,523,618

OPERATING EXPENSES
Selling, general and administrative		3,201,831			2,050,435			5,964,811			4,535,303
Litigation		2,346,914			1,124,947			2,446,072			1,617,462
Research and development		298,196			178,235			554,221			280,194
Depreciation and amortization		94,940			86,169			182,164			169,820
Total Operating Expenses		5,941,881			3,439,786			9,147,268			6,602,779

Net Operating (Loss)/Profit		(1,032,001	)		35,878			(449,178	)		(79,161	)

Non-Operating (Expense)/Income
Loss on currency exchange		(2,594	)		(1,235	)		(13,091	)		(10,925	)
(Loss)/Gain on disposal of fixed asset, net		(5,522	)		49,980			(5,522	)		49,740
Interest, net and other income, net		(5,002	)		18,243			14,028			35,723
TOTAL OTHER (EXPENSE)/INCOME		(13,118	)		66,988			(4,585	)		74,538

(LOSS)/INCOME BEFORE TAXES		(1,045,119	)		102,866			(453,763	)		(4,623	)

Income Tax Expense		(30,919	)		(24,683	)		(172,847	)		(2,584	)

NET (LOSS)/INCOME	$	(1,076,038	)	$	78,183		$	(626,610	)	$	(7,207	)

NET (LOSS)/INCOME PER SHARE

Basic	$	(0.03	)	$	0.00		$	(0.02	)	$	0.00
Diluted	$	(0.03	)	$	0.00		$	(0.02	)	$	0.00

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic		40,361,924			38,353,000			40,018,559			38,279,718
Diluted		40,524,754			39,299,800			40,201,134			39,219,752

REPRO MED SYSTEMS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Six Months Ended
	June 30,
	2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(626,610	)	$	(7,207	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Stock based compensation expense		784,821			529,538
Stock based litigation settlement expense		1,285,102			—
Depreciation and amortization		182,164			169,820
Deferred capital gain - building lease		—			(3,763	)
Deferred taxes		(145,770	)		66,494
Loss/(Gain) on disposal of fixed asset		5,522			(49,740	)
Changes in operating assets and liabilities:
Decrease/(Increase) in accounts receivable		268,619			(1,867,342	)
Increase in inventory		(1,278,811	)		(467,706	)
(Increase)/Decrease in prepaid expense and other assets		(156,316	)		44,874
Increase in accounts payable		347,350			76,882
Increase/(Decrease) in accrued payroll and related taxes		333,272			(249,730	)
Increase in accrued expense		1,389,588			346,181
Increase/(Decrease) in accrued tax liability		318,618			(72,210	)
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES		2,707,549			(1,483,909	)

CASH FLOWS FROM INVESTING ACTIVITIES
Payments for capital expenditures		(363,750	)		(67,079	)
Payments for patents		(149,523	)		(136,182	)
Proceeds on disposal of fixed asset		—			217,821
Proceeds from certificate of deposit		—			1,517,927
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES		(513,273	)		1,532,487

CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit advance		3,500,000			—
Issuance of equity		26,567,861			24,700
Payment for cancelled shares		—			(2,820	)
Finance lease		(3,717	)		(2,069	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		30,064,144			19,811

NET INCREASE IN CASH AND CASH EQUIVALENTS		32,258,420			68,389
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		5,870,929			3,738,803
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	38,129,349		$	3,807,192

Supplemental Information
Cash paid during the periods for:
Interest	$	13,554		$	233
Taxes	$	—		$	—

NON-CASH FINANCING AND INVESTING ACTIVITIES
Issuance of common stock as compensation	$	120,004		$	212,898


	Three Months Ended						Six Months Ended
Reconciliation of GAAP Net (Loss)/Income	June 30,						June 30,
to Non-GAAP Adjusted EBITDA:	2020			2019			2020			2019
GAAP Net (Loss)/Income	$	(1,076,038	)	$	78,183		$	(626,610	)	$	(7,207	)
Tax Expense		30,919			24,683			172,847			2,584
Depreciation/Amortization		94,940			86,169			182,164			169,820
Interest Expense/(Income), Net		5,002			(18,243	)		(14,028	)		(35,723	)
Reorganization Charges		—			—			—			354,926
Discontinued Product Expenses		(31,581	)		—			77,977			—
Litigation*		2,346,914			1,124,947			2,446,072			1,617,462
Manufacturing Initiative Expenses		25,957			—			135,759			—
Stock Option Expense		363,851			194,765			664,817			316,640
Non-GAAP Adjusted EBITDA	$	1,759,964		$	1,490,504		$	3,038,998		$	2,418,502