IRADIMED CORP (IRMD)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. See “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Our Business

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

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

Each IV infusion pump system generally 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, 2024, our direct U.S. sales force consisted of 27 field sales representatives, 4 regional sales directors and supplemented by 10 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 IDNs and healthcare supply contracting companies, which are commonly referred to as GPOs in the U.S., which enable us to sell and distribute our products to their member hospitals. GPOs negotiate volume purchase prices for hospitals, group practices, and other clinics that are members of a GPO. Under our

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GPO agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. Sales to participating IDNs do not have an associated fee.

Financial Highlights and Outlook

Our revenue was $73.2 million in 2024 and $65.6 million in 2023. Our diluted earnings per share was $1.50 in 2024, and $1.35 in 2023. Our cash provided by operations was $25.6 million in 2024, and $13.5 million in 2023.

Our estimated cumulative unit sales of medical devices are as follows:

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Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. 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.

Our significant accounting policies are more fully described in Note 1 to the Financial Statements. However, we believe that the following critical accounting policies require the use of significant estimates, assumptions and judgments. 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.

Revenue Recognition

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 U.S. and internationally. In the U.S. we sell our products through our direct sales force and outside of the U.S. we sell our products through third-party distributors who resell our products to end users.

For many domestic sales, we enter into agreements with IDN systems and healthcare supply contracting companies, commonly referred to as GPOs.

GPO agreements enable us to sell and distribute our products to their member hospitals. Our agreements with GPOs typically include negotiated pricing for all group members established at time of GPO contract execution. Under these agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. We do not sell to GPOs. Hospitals, group practices and other acute care facilities that are members of a GPO, purchase products directly from us under the terms of our GPO agreements.

We recognize revenue when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount we expect to receive, is determinable and we have transferred control of the promised products or services to the customer. We consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer, which is typically at a point in time, except for our extended warranty agreements. We allocate the transaction price using the relative standalone selling price method.

Customer sale prices for our medical devices and related disposables and services are contractually fixed over the contract term. We recognize a receivable at the point in time we have an unconditional right to payment. Payment

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terms are typically within 45 days after transferring control to U.S. customers. Most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products. Accordingly, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract.

We have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue.

In certain U.S. states we are required to collect sales taxes from our customers. We have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority.

Results of Operations

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

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Comparison of the Years Ended December 31, 2024 and 2023

Revenue by Geographic Region

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Revenue by Type

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For the year ended December 31, 2024, total revenue increased $7.6 million, or 12 percent, to $73.2 million from $65.6 million for the same period in 2023.

For the year ended December 31, 2024, revenue from sales in the U.S. increased $8.1 million, or 15.4 percent, to $60.6 million from $52.5 million for the same period in 2023. Revenue from sales internationally decreased $0.4 million, or 3.1 percent, to $12.6 million from $13.0 million for the same period in 2023. Domestic sales accounted for 83 percent of total revenue for the year ended December 31, 2024, compared to 80 percent for the same period in 2023.

For the year ended December 31, 2024, revenue from sales of devices increased $6.0 million, or 13.0 percent, to $51.9 million from $45.9 million for the same period in 2023. This increase was the result of higher overall unit sales, particularly our IV infusion pump systems.

For the year ended December 31, 2024, revenue from sales of our disposables, service and other increased $1.5 million, or 8.5 percent, to $19.1 million from $17.6 million for the same period in 2023. Revenue from the amortization of our extended warranty agreements increased $0.2 million, or 11.7 percent, to $2.2 million from $2.0 million for the same period in 2023. The increase in ancillary product sales and revenue from amortization aligns with the increased gross sales of our devices.

Cost of Revenue and Gross Profit

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Cost of revenue increased approximately $1.5 million, or 9.7 percent, to $16.9 million for the year ended December 31, 2024, from $15.4 million for the same period in 2023. Gross profit increased approximately $6.1 million, or 12.1 percent, to $56.3 million for the year ended December 31, 2024 from $50.2 million for the same period in 2023. The increase in cost of revenue and gross profit is primarily due to higher revenue during the year ended December 31, 2024, compared to the same period in 2023.

Gross profit margin was 76.9 percent and 76.5 percent for the years ended December 31, 2024 and 2023, respectively. The increase in gross profit margin is the result of favorable overhead variance adjustments and higher average selling prices in 2024 compared to 2023, a reduction in raw material costs, and increased management oversight of inventory. The increase in year over year sales also positively impacts the Company’s ability to favorably absorb overhead costs and increase gross profit margin.

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Operating Expenses

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General and Administrative

General and administrative expense increased approximately $0.8 million, or 5.4 percent, to $15.9 million for the year ended December 31, 2024, from $15.1 million for the same period in 2023. This increase is primarily due to higher expenses for legal and professional costs, regulatory approval and consulting costs, and payroll and employee benefits costs. These increases are a direct result of the continued growth of the Company and need for additional support resources.

Sales and Marketing

Sales and marketing expenses increased approximately $3.5 million, or 28.6 percent, to $15.6 million for the year ended December 31, 2024, from $12.1 million for the same period in 2023. This increase is primarily the result of increased expenses for sales commissions, sales-related travel costs, and higher expenses for payroll and benefits. Higher commissions are related to the sales cycle, and in line with revenue growth. The increases are a direct result of the continued growth of the Company.

Research and Development

Research and development expense remained relatively consistent at $2.8 million for the year ended December 31, 2024, compared to $2.9 million for the same period in 2023. This is primarily due to higher payroll and benefits costs, offset by lower prototype design and consulting expenses.

Other Income, Net

Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other income of approximately $2.3 million and $1.7 million for the years ended December 31, 2024 and 2023, respectively. This increase is primarily the result of higher interest income during the year ended December 31, 2024 compared to the same period in 2023.

Income Taxes

We recorded a provision for income tax expense of approximately $5.0 million for the year ended December 31, 2024, compared to a tax expense of approximately $4.5 million for the same period in 2023. Our effective tax rate for the year ended December 31, 2024 was 20.8 percent compared to 20.9 percent for the same period in 2023. The decrease in our effective tax rate is negligible and attributable to a number of immaterial factors.

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.

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As of December 31, 2024, we had cash and investments of $52.2 million, stockholders’ equity of $86.8 million, and working capital of $66.2 million, compared to cash and cash equivalents and investments of $49.8 million, stockholders’ equity of $71.4 million, and working capital of $59.7 million as of December 31, 2023.

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Comparison of the Years Ended December 31, 2024 and 2023

Operating Activities

For the year ended December 31, 2024, cash provided by operations increased $12.1 million to $25.6 million, from $13.5 million in 2023. During 2024, cash provided by operations was positively impacted by higher net income, lower inventory, lower accounts receivable, and increased stock compensation. Cash provided by operations was negatively impacted by higher accounts payable and other accruals, higher deferred revenue, and higher deferred income taxes.

Investing Activities

For the year ended December 31, 2024, cash used in investing activities increased $0.8 million to $8.8 million, from $8.0 million used in 2023. During 2024, cash related to investing activities was impacted by purchases of property and equipment, specifically ongoing construction costs for our new corporate office and manufacturing facility in Orange County, Florida.

Financing Activities

For the year ended December 31, 2024, cash used in financing activities increased $0.6 million to $14.3 million, from $13.7 million used in 2023. During 2024, cash used in financing activities was related to cash payments for dividends and taxes paid for the net share settlement of restricted stock units.

Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our manufacturing operations and headquarters facility is approximately 23,100 square feet located in Winter Springs, Florida. This facility has been leased from Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman, Roger Susi. Pursuant to the terms of the Amended Lease Amendment, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index.

We believe our sources of liquidity, including cash flow from operations, existing cash, and available financing sources will be sufficient to meet our projected cash requirements for at least the next 12 months from the date the financial statements are issued and into the foreseeable future. Any equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants that increase our costs. We monitor our capital requirements to ensure our needs are in line with available capital resources. From time to time, we may explore additional financing sources to meet our working capital requirements, make continued investment in research and development, expand our business and acquire products or businesses that complement our current business. These actions would likely affect our future capital requirements and the adequacy of our available funds. Our future liquidity and capital requirements will depend on numerous factors, including the:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. See “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Our Business

We develop, manufacture, market and distribute Magnetic Resonance Imaging (“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, 2023, our direct U.S. sales force consisted of 25 field sales representatives, 3 regional sales directors and supplemented by 7 clinical application specialists. Internationally, we have distribution agreements with independent distributors selling our products.

Selling cycles for our devices have varied widely and have historically ranged between three and six months in duration with more recent trends lengthening beyond this historical range due to lingering pandemic issues. We also enter into agreements with IDNs and healthcare supply contracting companies, which are commonly referred to as GPOs in the U.S., which enable us to sell and distribute our products to their member hospitals. GPOs negotiate volume

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purchase prices for hospitals, group practices, and other clinics that are members of a GPO. Under our GPO agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. Sales to participating IDNs do not have an associated fee.

Financial Highlights and Outlook

Our revenue was $65.6 million in 2023 and $53.3 million in 2022. Our diluted earnings per share was $1.35 in 2023, and $1.02 in 2022. Our cash provided by operations was $13.5 million in 2023, and $10.0 million in 2022.

Our estimated installed base of medical devices is as follows:

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Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. 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.

Our significant accounting policies are more fully described in Note 1 to the Financial Statements. However, we believe that the following critical accounting policies require the use of significant estimates, assumptions and judgments. 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.

Revenue Recognition

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 U.S. and internationally. In the U.S. we sell our products through our direct sales force and outside of the U.S. we sell our products through third-party distributors who resell our products to end users.

For many domestic sales, we enter into agreements with IDN systems and healthcare supply contracting companies, commonly referred to as GPOs.

GPO agreements enable us to sell and distribute our products to their member hospitals. Our agreements with GPOs typically include negotiated pricing for all group members established at time of GPO contract execution. Under these agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. We do not sell to GPOs. Hospitals, group practices and other acute care facilities that are members of a GPO, purchase products directly from us under the terms of our GPO agreements.

We recognize revenue when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount we expect to receive, is determinable and we have transferred control of the promised products or services to the customer. We consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer, which is typically at a point in time, except for our extended warranty agreements. We allocate the transaction price using the relative standalone selling price method.

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Customer sale prices for our medical devices and related disposables and services are contractually fixed over the contract term. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically within 45 days after transferring control to U.S. customers. Most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products. Accordingly, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract.

We have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue.

In certain U.S. states we are required to collect sales taxes from our customers. We have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority.

Results of Operations

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

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Comparison of the Years Ended December 31, 2023 and 2022

Revenue by Geographic Region

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Revenue by Type

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Revenue increased $12.3 million, or 23.0 percent, to $65.6 million from $53.3 million for the same period in 2022.

Revenue from sales in the U.S. increased $8.6 million, or 19.7 percent, to $52.5 million from $43.9 million for the same period in 2022. Revenue from sales internationally increased $3.6 million, or 38.6 percent, to $13.0 million from $9.4 million for the same period in 2022. Domestic sales accounted for 80.1 percent of total revenue for the year ended December 31, 2023, compared to 82.4 percent for the same period in 2022.

Revenue from sales of devices increased $9.5 million, or 25.9 percent, to $46.0 million from $36.5 million for the same period in 2022. This increase was the result of higher overall unit sales, particularly our IV infusion pump systems.

Revenue from sales of our disposables, service and other increased $3.0 million, or 20.2 percent, to $17.6 million from $14.6 million for the same period in 2022. Revenue from the amortization of our extended warranty agreements decreased $0.2 million, or 7.5%, to $2.0 million from $2.2 million for the same period in 2022. The increase in ancillary product sales aligns with the increased sales of our devices. The decline in revenue from the amortization of deferred revenue year-over-year is primarily due to a higher initial volume of deferred revenue during the pandemic, as more companies were purchasing extended warranties at that time.

Cost of Revenue and Gross Profit

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Cost of revenue increased approximately $3.4 million, or 28.1 percent, to $15.4 million for the year ended December 31, 2023, from $12.0 million for the same period in 2022. Gross profit increased approximately $8.9 million, or 21.5 percent, to $50.2 million for the year ended December 31, 2023 from $41.3 million for the same period in 2022. The increase in cost of revenue and gross profit is primarily due to higher revenue during the year ended December 31, 2023, compared to the same period in 2022.

Gross profit margin was 76.5 percent and 77.4 percent for the years ended December 31, 2023 and 2022, respectively. The increase in gross profit margin is the result of favorable overhead variance adjustments and higher average selling prices in 2023 compared to 2022, offset by increased raw material costs due to inflation. The increase

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in year over year sales also positively impacts the Company’s ability to favorably absorb overhead costs and increase gross profit margin.

Operating Expenses

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General and Administrative

General and administrative expense increased approximately $4.4 million, or 41.4 percent, to $15.1 million for the year ended December 31, 2023, from $10.7 million for the same period last year. This increase is primarily due to higher expenses for legal and professional costs, regulatory approval and consulting costs, and payroll and employee benefits costs. These increases are a direct result of the continuous growth of the Company and need for additional support resources.

Sales and Marketing

Sales and marketing expenses decreased approximately $0.6 million, or 4.3 percent, to $12.1 million for the year ended December 31, 2023, from $12.7 million for the same period in 2022. This decrease is primarily the result of lower expenses for sales commissions, partially offset by higher expenses for payroll and benefits. Lower commissions are related to the sales cycle, and not necessarily in line with revenue growth. The increases are a direct result of the continuing growth of the Company.

Research and Development

Research and development expense increased approximately $0.6 million, or 25.5 percent, to $2.9 million for the year ended December 31, 2023, from $2.3 million for the same period in 2022. This is primarily due to higher payroll and benefits costs, offset by lower prototype design and consulting expenses.

Other Income, Net

Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other income of approximately $1.7 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively. This increase is primarily the result of higher interest income during the year ended December 31, 2023 compared to the same period in 2022.

Income Taxes

We recorded a provision for income tax expense of approximately $4.5 million for the year ended December 31, 2023, compared to a tax expense of approximately $3.4 million for the year ended December 31, 2022. Our effective tax rate for the year ended December 31, 2023 was 20.8 percent compared to 20.7 percent for the same period in 2022. The increase in our effective tax rate is primarily the result of higher book income before the provision for income taxes.

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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 December 31, 2023, we had cash and investments of $49.8 million, stockholders’ equity of $71.4 million, and working capital of $59.7 million, compared to cash and cash equivalents and investments of $58.0 million, stockholders’ equity of $73.7 million, and working capital of $68.9 million as of December 31, 2022.

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Comparison of the Years Ended December 31, 2023 and 2022

Operating Activities

For the year ended December 31, 2023, cash provided by operations increased $3.5 million to $13.5 million, from $10.0 million in 2022. During 2023, cash provided by operations was positively impacted by higher net income, accounts receivable, stock compensation, and deferred revenue. Cash provided by operations was negatively impacted by inventory, accounts payable, and deferred income taxes.

Investing Activities

For the year ended December 31, 2023, cash related to investing activities decreased $6.6 million to a use of $8.0 million, from $1.4 million used in 2022. During 2023, cash related to investing activities was impacted by purchases of property and equipment, specifically the purchase of land. During 2022, cash related to investing activities was impacted by maturities of investments, purchases of property and equipment, and capitalized intangible assets.

Financing Activities

For the year ended December 31, 2023, cash related to financing activities decreased $1.0 million to a use of $13.7 million, from $12.7 million used in 2022. During 2023, cash used in financing activities was related to a cash payment for a dividend and taxes paid for the net share settlement of restricted stock units.

Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our manufacturing operations and headquarters facility is approximately 23,100 square feet located in Winter Springs, Florida. This facility has been leased from Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman, 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.

We believe our sources of liquidity, including cash flow from operations, existing cash, and available financing sources will be sufficient to meet our projected cash requirements for at least the next 12 months from the date the financial statements are issued. Any equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants that increase our costs. We monitor our capital requirements to ensure our needs are in line with available capital resources. From time to time, we may explore additional financing sources to meet our working capital requirements, make continued investment in research and development, expand our business and acquire products or businesses that complement our current business. These actions would likely affect our future capital

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requirements and the adequacy of our available funds. Our future liquidity and capital requirements will depend on numerous factors, including the:

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. See “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Our Business

We develop, manufacture, market and distribute Magnetic Resonance Imaging (“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, 2022, our direct U.S. sales force consisted of 25 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 with more recent trends lengthening beyond this historical range due to lingering pandemic issues. 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.

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Financial Highlights and Outlook

Our revenue was $53.3 million in 2022 and $41.8 million in 2021. Our diluted earnings per share was $1.02 in 2022, and $0.74 in 2021. Our cash provided by operations was $10.0 million in 2022, and $11.3 million in 2021.

Our estimated installed base of medical devices is as follows:

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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. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict, including 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.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. 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.

Our significant accounting policies are more fully described in Note 1 to the Financial Statements. However, we believe that the following critical accounting policies require the use of significant estimates, assumptions and judgments. 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.

Revenue Recognition

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 U.S. and internationally. In the U.S. we sell our products through our direct sales force and outside of the U.S. we sell our products through third-party distributors who resell our products to end users.

For many domestic sales, we enter into agreements with integrated delivery health systems and healthcare supply contracting companies, commonly referred to as Group Purchasing Organizations (“GPOs”).

GPO agreements enable us to sell and distribute our products to their member hospitals. Our agreements with GPOs typically include negotiated pricing for all group members established at time of GPO contract execution. Under these agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. We do not sell to GPOs. Hospitals, group practices and other acute care facilities that are members of a GPO, purchase products directly from us under the terms of our GPO agreements.

We recognize revenue when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount we expect to receive, is determinable and we have transferred control of the promised products or services to the customer. We consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer, which is typically at a point in time, except for our extended warranty agreements. We allocate the transaction price using the relative standalone selling price method.

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Customer sale prices for our medical devices and related disposables and services are contractually fixed over the contract term. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically within 45 days after transferring control to U.S. customers. Most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products. Accordingly, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract.

We have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue.

In certain U.S. states we are required to collect sales taxes from our customers. We have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority.

Results of Operations

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

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Comparison of the Years Ended December 31, 2022 and 2021

Revenue by Geographic Region

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Revenue by Type

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Revenue increased $11.5 million, or 27.5 percent, to $53.3 million from $41.8 million for the same period in 2021.

Revenue from sales in the U.S. increased $10.4 million, or 31.0 percent, to $43.9 million from $33.5 million for the same period in 2021. Revenue from sales internationally increased $1.1 million, or 13.3 percent, to $9.4 million from $8.3 million for the same period in 2021. Domestic sales accounted for 82.4 percent of total revenue for the year ended December 31, 2022, compared to 80.0 percent for the same period in 2021.

Revenue from sales of devices increased $9.4 million, or 34.7 percent, to $36.5 million from $27.1 million for the same period in 2021. This increase was the result of higher overall unit sales especially related to our patient vital signs monitoring systems.

Revenue from sales of our disposables, service and other increased $1.8 million, or 14.1 percent, to $14.6 million from $12.8 million for the same period in 2021. Revenue from the amortization of our extended warranty agreements increased $0.3 million, or 15.8%, to $2.2 million from $1.9 million for the same period in 2021. The increase in ancillary product sales aligns with the increased sales of our devices.

Cost of Revenue and Gross Profit

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Cost of revenue increased approximately $2.2 million, or 22.4 percent, to $12.0 million for the year ended December 31, 2022, from $9.8 million for the same period in 2021. Gross profit increased approximately $9.3 million, or 29.1 percent, to $41.3 million for the year ended December 31, 2022 from $32.0 million for the same period in 2021. The increase in cost of revenue and gross profit is primarily due to higher revenue during the year ended December 31, 2022, compared to the same period in 2021.

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Gross profit margin was 77.5 percent and 76.6 percent for the years ended December 31, 2022 and 2021, respectively. The increase in gross profit margin is the result of favorable overhead variance adjustments and higher average selling prices in 2022 compared to 2021, offset by increased raw material costs due to inflation. The increase in year over year sales also positively impacts the ability to favorably absorb overhead costs increasing gross profit margin.

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Operating Expenses

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General and Administrative

General and administrative expense increased approximately $0.9 million, or 9.2 percent, to $10.7 million for the year ended December 31, 2022, from $9.8 million for the same period last year. This increase is primarily due to higher expenses for legal and professional costs, regulatory approval and certification costs, and payroll and employee benefits costs. These increases are a direct result of the continuous growth of the company and need for additional resources.

Sales and Marketing

Sales and marketing expense increased approximately $2.1 million, or 19.8 percent, to $12.7 million for the year ended December 31, 2022, from $10.6 million for the same period in 2021. This increase is primarily the result of higher expenses for sales commissions, sales activities and software costs, partially offset by lower expenses for payroll and benefits. These increases are a direct result of the continuous growth of the Company. Commissions and sales activity expenses increases in line with revenue growth.

Research and Development

Research and development expense increased approximately $0.4 million, or 21.1 percent, to $2.3 million for the year ended December 31, 2022, from $1.9 million for the same period in 2021. This is primarily due to higher expenses for prototype and consulting costs, offset by lower allocated payroll and benefits costs.

Other Income, Net

Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other income of approximately $550 thousand and $19 thousand for the years ended December 31, 2022 and 2021, respectively. This increase is primarily the result of higher interest income during the year ended December 31, 2022 compared to the same period in 2021.

Income Taxes

We recorded a provision for income tax expense of approximately $3.4 million for the year ended December 31, 2022, compared to a tax expense of approximately $0.5 million for the year ended December 31, 2021. Our effective tax rate for the year ended December 31, 2022 was 20.7 percent compared to 5.2 percent for the same period in 2021. The increase in our effective tax rate is primarily the result of higher book income before the provision for income taxes and tax benefits associated with the exercise and sale of employee options and vesting of restricted stock units that materially reduced the effective tax rate in 2021 but did not recur to the same extent in 2022.

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.

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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, compared to cash and cash equivalents and investments of $62.5 million, stockholders’ equity of $72.2 million, and working capital of $69.4 million as of December 31, 2021.

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Comparison of the Years Ended December 31, 2022 and 2021

Operating Activities

For the year ended December 31, 2022, cash provided by operations decreased $1.2 million to $10.1 million, from $11.3 million in 2021. During 2022, cash provided by operations was positively impacted by higher net income, prepaid expenses, accounts payable, and prepaid income taxes. Cash provided by operations was negatively impacted by net accounts receivable and accrued payroll and benefits.

Investing Activities

For the year ended December 31, 2022, cash related to investing activities decreased $2.0 million to a use of $1.4 million, from $0.6 million provided in 2021. During 2022, cash related to investing activities was impacted by maturities of investments, purchases of property and equipment, and capitalized intangible assets. During 2021, cash provided by investing activities was impacted by maturities of investments, partially offset by impacts from purchases of property and equipment, and capitalized intangible assets.

Financing Activities

For the year ended December 31, 2022, cash related to financing activities decreased $(12.7) million to a use of $(12.7) million, from $24 thousand provided in 2021. During 2022, cash provided by financing activities was related to a cash payment for a dividend, proceeds from the exercise of stock options, offset by taxes paid for the net share settlement of restricted stock units.

Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our manufacturing operations and headquarters facility is approximately 23,100 square feet located in Winter Springs, Florida. This facility has been leased from Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman, 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.

We believe our sources of liquidity, including cash flow from operations, existing cash, investments, and available financing sources will be sufficient to meet our projected cash requirements for at least the next 12 months from the date the financial statements are issued. Any equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants that increase our costs. We monitor our capital requirements to ensure our needs are in line with available capital resources. From time to time, we may explore additional financing sources to meet our working capital requirements, make continued investment in research and development, expand our business and acquire products or businesses that complement our current business. These actions would likely affect our future capital requirements and the adequacy of our available funds. Our future liquidity and capital requirements will depend on numerous factors, including the:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. See “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks and assumptions associated with these statements.

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Our Business

We develop, manufacture, market and distribute Magnetic Resonance Imaging (“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.

Selling cycles for our devices have varied widely and have historically ranged between three and six months in duration with more recent trends lengthening beyond this historical range due to the COVID-19 pandemic. 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 and Outlook

Our revenue was $41.8 million in 2021, $31.7 million in 2020 and $38.5 million in 2019. Our diluted earnings per share was $0.74 in 2021, $0.11 in 2020 and $0.78 in 2019. Our cash provided by operations was $11.3 million in 2021, $5.8 million in 2020 and $10.2 million in 2019.

Our estimated installed base of medical devices is as follows:

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Effects of the COVID-19 Pandemic

The COVID-19 pandemic, and related governmental and societal responses thereto, continue to cause disruption in global supply and distribution channels and significantly change the way companies manage their business. 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.

We continue to monitor the developments associated with the COVID-19 pandemic and its effects on our employees, customers, supply chain and distribution channels. The ongoing impact of the pandemic depends on several factors including the severity and duration of the pandemic and the extent and severity of the impact on our customers, which is uncertain and unpredictable. Our future results of operations and cash flows may suffer adverse effects from disruptions in our supply chain and manufacturing operations, delays in payments on outstanding accounts receivable, uncertain demand for our products, and effects of any actions we may take to address financial and operational challenges our customers may face. Our future results may potentially be heavily determined by global vaccination rates, duration of the pandemic, its geographic spread, further business disruptions and the overall impact on the global economy. Other risks and uncertainties that we face include, but are not limited to:

We are actively managing our response to the COVID-19 pandemic and working with our customers, distributors, vendors, and suppliers and assessing the potential effects to our financial position, results of operations and cash flows. As of the date of the issuance of these financial statements, the extent to which COVID-19, or its variants, may materially impact our financial condition, liquidity, or results of operations in future periods remains uncertain. For further information regarding the potential impact of the COVID-19 pandemic on our company, see “Risk Factors” in Item 1A of this report.

The CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. The CARES Act allows for the carryback of net operating losses, which were expected to be used in future years, to prior years resulting in a $0.8 million benefit that was recognized in the year ended December 31, 2020. Consequently, we recorded an income tax receivable of approximately $1.4 million as of December 31, 2020.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. 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.

Our significant accounting policies are more fully described in Note 1 to the Financial Statements. However, we believe that the following critical accounting policies require the use of significant estimates, assumptions and judgments. 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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The extent to which COVID-19 impacts our business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19 and its variants, the extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2021, and through the date of the filing of this Annual Report on Form 10-K. The accounting matters assessed included, but were not limited to estimates related to revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation, the realization of deferred tax assets, and assessments of impairment related to long-lived assets and intangibles. Our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to our financial statements in future reporting periods.

Despite our efforts, the ultimate impact of COVID-19 depends on factors beyond our knowledge or control, including the duration and severity of variants thereof, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, we are unable to estimate the full extent to which COVID-19 may again negatively impact our financial results or liquidity.

Revenue Recognition

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 U.S. and internationally. In the U.S. we sell our products through our direct sales force and outside of the U.S. we sell our products through third-party distributors who resell our products to end users.

For many domestic sales, we enter into agreements with integrated delivery health systems and healthcare supply contracting companies, commonly referred to as Group Purchasing Organizations (“GPOs”).

GPO agreements enable us to sell and distribute our products to their member hospitals. Our agreements with GPOs typically include negotiated pricing for all group members established at time of GPO contract execution. Under these agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. We do not sell to GPOs. Hospitals, group practices and other acute care facilities that are members of a GPO, purchase products directly from us under the terms of our GPO agreements.

We recognize revenue when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount we expect to receive, is determinable and we have transferred control of the promised products or services to the customer. We consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer, which is typically at a point in time, except for our extended warranty agreements. We allocate the transaction price using the relative standalone selling price method.

Customer sale prices for our medical devices and related disposables and services are contractually fixed over the contract term. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically within 45 days after transferring control to U.S. customers. Most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products. Accordingly, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract.

We have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue.

In certain U.S. states we are required to collect sales taxes from our customers. We have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority.

Contract Liabilities

We record contract liabilities, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received in advance of our performance. When we sell a product or service with a future performance obligation, we defer revenue allocated to the unfulfilled performance obligation and recognize this revenue when, or as, the performance obligation is satisfied.

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Our deferred revenue consists of advance payments received from customers prior to the transfer of products or services, shipments that are in-transit at the end of a period and sales of extended warranty agreements. Advance payments received from customers and shipments in-transit are recognized in revenue at the time control of the related products has been transferred to the customer or services have been delivered. Amounts related to extended warranty agreements are deferred and recognized in revenue ratably over the agreement period, which is typically one to four years after control of the related products is transferred to the customer, as we believe this recognition pattern best depicts the transfer of services being provided.

Deferred revenue is classified as current or long-term deferred revenue in our Balance Sheets, depending on the expected timing of satisfying the related performance obligations.

Capitalized Contract Costs

We capitalize commissions paid to our sales managers related to contracts with customers when the associated revenue is expected to be earned over a period of time. Deferred commissions are primarily related to the sale of extended warranty agreements. Capitalized commissions are included in Prepaid Expenses and Other Current Assets in our Balance Sheets when the associated expense is expected to be recognized in one year or less, or in Other Assets when the associated expense is expected to be recognized in greater than one year. The associated expense is included in Sales and Marketing expenses in our Statements of Operations.

Variable Consideration

Our sales are typically subject to 30 to 60-day customer-specified acceptance provisions primarily for purposes of ensuring products were not damaged during the shipping process. Historically, we have experienced immaterial product returns and, when experienced, we typically exchange the affected products with new products. Accordingly, variable consideration from contracts with customers is immaterial to our financial statements.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable is recorded at the transaction price of the related products and services. We regularly assess the sufficiency of the allowance for estimated uncollectible accounts receivable. Estimates are based on historical collection experience and other customer-specific information, such as bankruptcy filings or known liquidity problems of our customers. When it is determined that an account receivable is uncollectible, it is written off and relieved from the allowance. Any future determination that the allowance for estimated uncollectible accounts receivable is not properly stated could result in changes in operating expense and results of operations.

Inventory

Inventory is stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We may be exposed to a number of factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, technological changes, competitive pressures in products and prices, and the introduction of new product versions and new products. We regularly evaluate our ability to realize the value of inventory based on a combination of factors, including historical usage rates, forecasted sales, product life cycles, and market acceptance of new products. When inventory that is obsolete or in excess of anticipated usage is identified, it is written down to net realizable value or an inventory valuation allowance is established.

The estimates we use in projecting future product demand may prove to be incorrect. Any future determination that our inventory is overvalued could result in increases to our cost of sales and decreases to our operating margins and results of operations.

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Warranty

We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in product quality programs and processes, including actively monitoring and evaluating the quality of our suppliers, the estimated warranty obligation is affected by ongoing product failure rates, material usage costs and direct labor incurred in correcting a product failure. Actual product failure rates, material usage costs and the amount of labor required to repair products that differ from estimates result in revisions to the estimated liability. We warrant for a limited period of time that our products will be free from defects in materials and workmanship. We estimate warranty allowances based on historical warranty experience. The estimates we use in projecting future product warranty costs may prove to be incorrect. Any future determination that our provision for product warranty is understated could result in increases to our cost of revenue and a reduction in our operating profits and results of operations. Historically, warranty expenses have not been material to our financial statements.

Stock-based Compensation

We apply the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ASC 718”).

Determining the amount of stock-based compensation to be recorded for stock options that we grant requires us to develop estimates of the fair value as of the grant date. Calculating the fair value of stock option awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Estimated volatility is based on the historical volatility of our share price. We use the simplified method as prescribed by ASC 718 to calculate the expected term of stock options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of our stock option awards. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of the grant for instruments with a similar expected life. Historically, we utilized a dividend yield of zero based on our expectations of not paying cash dividends as of the grant date. We elect to recognize forfeitures as they occur. We have not utilized stock options in equity compensation since 2019.

The grant date fair value of our restricted stock units is based on the closing price of our common stock on the date of grant.

The grant date fair value of our Performance-Based Restricted Stock Units (“PSUs”) is based on a Monte Carlo simulation, the closing price of our common stock, and other pertinent factors on the grant date. Compensation expense for the PSUs is recognized on a straight-line basis over the requisite performance period, which is three years from the grant date.

As stock-based compensation is an important part of our employee compensation reward strategy, we expect the future impact of stock-based compensation expense on our financial results to grow due to additional stock grants and increased headcount.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is recorded to offset net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We recognize the tax benefit of uncertain tax positions in the financial statements based on the technical merits of the position. When the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement.

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Results of Operations

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

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Comparison of the Years Ended December 31, 2021 and 2020

Revenue by Geographic Region

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Revenue by Type

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Revenue increased $10.1 million, or 31.8 percent, to $41.8 million from $31.7 million for the same period in 2020.

Revenue from sales in the U.S. increased $9.0 million, or 36.4 percent, to $33.5 million from $24.5 million for the same period in 2020. Revenue from sales internationally increased $1.1 million, or 16.3 percent, to $8.3 million from $7.2 million for the same period in 2020. Domestic sales accounted for 80.0 percent of total revenue for the year ended December 31, 2021, compared to 77.4 percent for the same period in 2020.

Revenue from sales of devices increased $8.0 million, or 41.6 percent, to $27.1 million from $19.1 million for the same period in 2020. This increase was the result of higher unit sales of our of our MRI compatible IV infusion pump and patient vital signs monitoring systems.

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During the year ended December 31, 2021, we recognized revenue on 385 MRI compatible IV infusion pumps compared to 279 pumps in 2020. The average selling price for our MRI compatible IV infusion pump systems recognized in revenue during the year ended December 31, 2021 was approximately $34,500, compared to $35,600 for the same period in 2020. The decrease in average selling price is the result of a lower average selling price for domestic sales.

We recognized revenue on 344 MRI compatible patient vital signs monitoring systems during the year ended December 31, 2021, compared to 255 systems for the same period in 2020. The average selling price for our MRI compatible patient vital signs monitoring systems recognized in revenue was approximately $40,100 during the year ended December 31, 2021, compared to $36,300 for the same period in 2020. The increase in average selling price is due to higher domestic unit sales and customer price increases.

Revenue from sales of our disposables, service and other increased $2.1 million, or 19.3 percent, to $12.8 million from $10.7 million for the same period in 2020. Revenue from the amortization of our extended warranty agreements was consistent at $1.9 million for the years ended December 31, 2021 and 2020.

Cost of Revenue and Gross Profit

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Cost of revenue increased approximately $1.7 million, or 19.9 percent, to $9.8 million for the year ended December 31, 2021, from $8.1 million for the same period in 2020. Gross profit increased approximately $8.4 million, or 36.0 percent, to $32.0 million for the year ended December 31, 2021 from $23.6 million for the same period in 2020. The increase in cost of revenue and gross profit is primarily due to higher revenue during the year ended December 31, 2021, compared to the same period in 2020.

Gross profit margin was 76.6 percent and 74.3 percent for the years ended December 31, 2021 and 2020, respectively. The increase in gross profit margin is the result of favorable overhead variance adjustments and higher average selling prices in 2021 compared to 2020.

Operating Expenses

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General and Administrative

General and administrative expense decreased approximately $(2.5) million, or (20.4) percent, to $9.8 million for the year ended December 31, 2021, from $12.3 million for the same period last year. This decrease is primarily due to lower expenses for stock compensation, and legal and professional costs, partially offset by higher expenses for regulatory approval and certification costs, and payroll and employee benefits costs. During the year ended December 31, 2020, the Company recognized total general and administrative expense of $3.2 million related to our former Chief Executive Officer, of which $2.7 million relates to the separation.

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Sales and Marketing

Sales and marketing expense increased approximately $0.4 million, or 3.9 percent, to $10.6 million for the year ended December 31, 2021, from $10.2 million for the same period in 2020. This increase is primarily the result of higher expenses for sales commissions, sales activities and software costs, partially offset by lower expenses for payroll and benefits.

Research and Development

Research and development expense was consistent at $1.9 million for the years ended December 31, 2021 and 2020. This is primarily due to higher expenses for prototype and consulting costs, offset by lower allocated payroll and benefits costs.

Other Income, Net

Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other income of approximately $19 thousand and $139 thousand for the years ended December 31, 2021 and 2020, respectively. This decrease is primarily the result of lower interest income during the year ended December 31, 2021 compared to the same period in 2020.

Income Taxes

We recorded a provision for income tax expense of approximately $0.5 million for the year ended December 31, 2021, compared to a tax benefit of approximately $(2.0) million for the year ended December 31, 2020. Our effective tax rate for the year ended December 31, 2021 was 5.2 percent compared to 321.9 percent for the same period in 2020. The decrease in our effective tax rate is primarily the result of higher income before the provision for income taxes and discrete items related to tax benefits associated with the exercise and sale of employee options and vesting of restricted stock units.

Comparison of the Years Ended December 31, 2020 and 2019

Revenue by Geographic Region

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Revenue by Type

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Revenue decreased $(6.8) million, or (17.7) percent, to $31.7 million from $38.5 million for the same period in 2019.

Revenue from sales in the U.S. decreased $(6.4) million, or (20.7) percent, to $24.5 million from $30.9 million for the same period in 2019. Revenue from sales internationally decreased $(0.4) million, or (5.3) percent, to $7.2 million from $7.6 million for the same period in 2019. Domestic sales accounted for 77.4 percent of total revenue for the year ended December 31, 2020, compared to 80.3 percent for the same period in 2019.

Revenue from sales of devices decreased $(8.7) million, or (31.1) percent, to $19.1 million from $27.8 million for the same period in 2019. This decrease was the result of lower revenue from sales of our MRI compatible IV infusion pump systems.

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During the year ended December 31, 2020, we recognized revenue on 279 MRI compatible IV infusion pumps compared to 519 pumps in 2019. The average selling price for our MRI compatible IV infusion pump systems recognized in revenue during the year ended December 31, 2020 was approximately $33,600, compared to $34,800 for the same period in 2019. The decrease in average selling price is the result of higher international unit sales and an unfavorable product sales mix during 2020 when compared to 2019.

We recognized revenue on 255 MRI compatible patient vital signs monitoring systems during the year ended December 31, 2020, compared to 278 systems for the same period in 2019. The average selling price for our MRI compatible patient vital signs monitoring systems recognized in revenue was approximately $36,300 during the year ended December 31, 2020, compared to $34,700 for the same period in 2019. The increase in average selling price is due to higher domestic unit sales, partially offset by an unfavorable product sales mix in 2020 when compared to 2019.

Revenue from sales of our disposables, service and other increased $1.8 million, or 20.3 percent, to $10.7 million from $8.9 million for the same period in 2020. Revenue from the amortization of our extended warranty agreements increased $0.1 million, or 1.6 percent, to $1.9 million from $1.8 million for the same period in 2019.

Cost of Revenue and Gross Profit

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Cost of revenue decreased approximately $(0.7) million, or (7.6) percent, to $8.1 million for the year ended December 31, 2020, from $8.8 million for the same period in 2019. Gross profit decreased approximately $(6.1) million, or (20.6) percent, to $23.6 million for the year ended December 31, 2020 from $29.7 million for the same period in 2019. The decrease in cost of revenue and gross profit is primarily due to lower revenue during the year ended December 31, 2020, compared to the same period in 2019.

Gross profit margin was 74.3 percent and 77.1 percent for the years ended December 31, 2020 and 2019, respectively. The decrease in gross profit margin is the result of unfavorable overhead variance adjustments, partially offset by favorable pricing adjustments in 2020 compared to 2019.

Operating Expenses

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General and Administrative

General and administrative expense increased approximately $1.8 million, or 17.4 percent, to $12.3 million for the year ended December 31, 2020, from $10.5 million for the same period last year. This increase is primarily due to higher expenses for stock compensation, and payroll and benefits, partially offset by lower employee recruiting costs, GPO administrative fees and regulatory approval and certification costs. During the year ended December 31, 2020, the Company recognized total general and administrative expense of $3.2 million related to our former Chief Executive Officer, of which $2.7 million relates to the separation.

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Sales and Marketing

Sales and marketing expense increased approximately $1.0 million, or 10.8 percent, to $10.2 million for the year ended December 31, 2020, from $9.2 million for the same period in 2019. This increase is primarily the result of higher expenses for payroll and benefits, and sales commissions, partially offset by lower sales activities expenses and tradeshow costs during 2020 when compared to 2019.

Research and Development

Research and development expense increased approximately $0.5 million, or 32.8 percent, to $1.9 million for the year ended December 31, 2020, from $1.4 million for the same period in 2019. This increase is primarily due to higher payroll and benefits expenses and employee recruiting fees, partially offset by lower consulting expenses during 2020 when compared to 2019.

Other Income, Net

Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other income of approximately $0.1 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively. This decrease is primarily the result of lower interest income during the year ended December 31, 2020 compared to the same period in 2019.

Income Taxes

We recorded a provision for income tax benefit of approximately $(2.0) million and $(0.6) million for the years ended December 31, 2020 and 2019, respectively. Our effective tax rate for the year ended December 31, 2020 was 321.9 percent compared to (6.5) percent for the same period in 2019. The increase in our effective tax rate is primarily the result of a loss before the provision for income taxes, discrete items related to tax benefits associated with the exercise and sale of employee options and vesting of restricted stock units, and the carryback of net operating losses to years prior to the enactment of the Tax Cuts and Jobs Act, as allowable under the Coronavirus Aid, Relief, and Economic Security Act. These were partially offset by a statutory limitation on the deductibility of certain executive compensation associated with the separation of our former Chief Executive Officer.

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 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, compared to cash and cash equivalents and investments of $52.0 million, stockholders’ equity of $61.4 million, and working capital of $58.8 million as of December 31, 2020.

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Comparison of the Years Ended December 31, 2021, 2020 and 2019

Operating Activities

For the year ended December 31, 2021, cash provided by operations increased $5.5 million to $11.3 million, from $5.8 million in 2020. During 2021, cash provided by operations was positively impacted by higher net income, stock-based compensation, depreciation and amortization, accrued payroll and benefits, and deferred income taxes. Cash provided by operations was negatively impacted by prepaid expenses and other current assets, accounts receivable, and prepaid income taxes.

For the year ended December 31, 2020, cash provided by operations decreased $(4.4) million to $5.8 million, from $10.2 million in 2019. During 2020, cash provided by operations was negatively impacted by lower net income, prepaid expenses and other current assets, income taxes, other accrued taxes, accrued payroll and benefits, and accounts payable. Cash provided by operations was positively impacted by stock-based compensation, accounts receivable, depreciation and amortization and deferred income taxes.

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For the year ended December 31, 2019, cash provided by operations increased $2.8 million to $10.2 million, from $7.4 million in 2018. During 2019, cash provided by operations was positively impacted by higher net income, deferred revenue, other accrued taxes and accounts payable, partially offset by negative impacts from accounts receivable and other assets.

Investing Activities

For the year ended December 31, 2021, cash provided by investing activities increased $0.4 million to $0.6 million, from $0.2 million in 2020. During 2021, cash provided by investing activities was positively impacted by maturities of investments, partially offset by negative impacts from purchases of property and equipment, and capitalized intangible assets.

For the year ended December 31, 2020, cash provided by investing activities decreased $(3.0) million to $0.2 million, from $3.2 million in 2019. During 2020, cash provided by investing activities was positively impacted by maturities of investments, partially offset by negative impacts from purchases of property and equipment, and capitalized intangible assets.

For the year ended December 31, 2019, cash provided by investing activities increased $1.7 million to $3.2 million, from $1.5 million in 2018. During 2019, cash provided by investing activities was positively impacted by maturities of investments, partially offset by negative impacts from purchases of property and equipment, and capitalized intangible assets.

Financing Activities

For the year ended December 31, 2021, cash provided by financing activities decreased $(0.5) million to $0.0 million, from $0.5 million in 2020. During 2021, cash provided by financing activities was positively impacted by proceeds from the exercise of stock options, offset by taxes paid for the net share settlement of restricted stock units.

For the year ended December 31, 2020, cash provided by financing activities decreased $(1.5) million to $0.5, from $2.0 million in 2019. During 2020, cash provided by financing activities was positively impacted by proceeds from the exercise of stock options, partially offset by taxes paid for the net share settlement of restricted stock units.

For the year ended December 31, 2019, cash provided by financing activities increased $1.1 million to $2.0, from $0.9 million in 2018. During 2019, cash provided by financing activities was positively impacted by proceeds from the exercise of stock options and warrants, partially offset by taxes paid for the net share settlement of restricted stock units.

Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our manufacturing operations and headquarters facility is approximately 23,100 square feet located in Winter Springs, Florida. This facility has been leased from Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman, 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.

We believe our sources of liquidity, including cash flow from operations, existing cash, investments, and available financing sources will be sufficient to meet our projected cash requirements for at least the next 12 months from the date the financial statements are issued. Any equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants that increase our costs. We monitor our capital requirements to ensure our needs are in line with available capital resources. From time to time, we may explore additional financing sources to meet our working capital requirements, make continued investment in research and development, expand our business and acquire products or businesses that complement our current business. These actions would likely affect our future capital requirements and the adequacy of our available funds. Our future liquidity and capital requirements will depend on numerous factors, including the:

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Contractual Obligations

In the normal course of business, we enter into obligations and commitments that require future contractual payments. The commitments result primarily from purchase orders with vendors that supply components used in our medical devices and related disposables and commitments for our building and office equipment leases. The following table summarizes our contractual obligations and commercial commitments as of December 31, 2021:

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Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding. Included in the purchase obligations category above are obligations related to purchase orders for inventory purchases under our standard terms and conditions and under negotiated agreements with vendors. We expect to receive consideration (products or services) for these purchase obligations. The purchase obligation amounts do not represent all anticipated purchases in the future, but represent only those items for which we are contractually obligated. The table above does not include obligations under employment agreements for services rendered in the ordinary course of business.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

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