Iradimed Corp Q4 FY2021 Earnings Call

Welcome to the IRadimed Corporation, Fourth Quarter 2021 Financial Results Conference Call. Currently, all participants are in a listen-only mode. And at the end of the call, we will conduct a question-and-answer session. As a reminder, this call is being recorded today, February 4, 2022 and contains time-sensitive information that is accurate only as of today. Earlier, IRadimed released the financial results for the fourth quarter 2021, a copy of its press release announcing the company's earnings available under the heading news on their website at iradimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on form 8-K and can be found at sec.gov. This call is being broadcast live over the Internet on the company's website at iradimed.com and a replay of the call will be available on the website for the next 90 days. Some of the information to be furnished in today's session will contain forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Forward-looking statements are those focused on the future performance results, plans, and events and may include the company's expected future results. IRadimed reminds you that future results may differ materially from these forward-looking statements due to several risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see the risk factors section of the company's most recent filed report with the Securities and Exchange Commission, which again, may be obtained for free from the SEC website @sec.com. I would now like to turn the conference over to Roger Susi, President and Chief Executive Officer, IRadimed Corporation. Mr. Susi, please go ahead.

Thank you. Good morning and thank you all for participating in the call today. I am happy to report another very good quarter of revenue and earnings growth as well as an exciting and outstanding year. As we reported in this morning's press release, Q4 revenue was $11.9 million, a 39% increase over the fourth quarter of 2020. Non-GAAP earnings were $0.33 or 373% over that fourth quarter 2020. On a sequential basis we continued our path of growth trend with Q4 revenue coming in at 9% over Q3 2021 and adjusted earnings in over 43%. From the sales perspective, customer demand for our products started off and remains strong all year and continually outpaced our expectations. We saw strength of demand demonstrated in our record bookings which were 39% higher in the full-year '21 over 2020. Our string of extremely strong bookings growth continued directly into the fourth quarter when bookings increased nearly 48% over the fourth quarter of 2020 on a sequential basis, over 25% from the third quarter 2021. The level of demand for our products has also allowed us to grow backlog, which at the end of the year stood at $10.9 million compared to $4.4 million at the end of 2020. We feel that the strong demand for our products and growing backlog level adds to our confidence and further validates the value that we bring to our customers. Regarding engineering and new product development, much of our attention has turned to supporting the regulatory team towards clearance of our next-generation IV pump. We've continued to work with the FDA on the additional testing and documentation they've been requiring. We expect that this will continue for much of the first half of the year and still anticipate potential clearance coming in the second half of 2022. Other areas of focus with the engineering team have been finalized in the ferromagnetic detector and preparing for its first deliveries. We feel very good about where we are with this device and we believe that we have a technologically superior product in this device compared with other devices currently in the field. With our technology and direct sales team, we are well-positioned for success in this market. Now, before turning the call over to Chris for additional information and updates, I'd like to review our 2022 financial guidance with all of you. As I mentioned, we have growing confidence and visibility with the strong results of 2021. We believe we are at an inflection point as customers realize more and more the value that our products bring. Additionally, we continue to take market share with our monitor, and we will have these first deliveries of the FMD in 2022 as well. That said for the full year 2022, we expect revenue of $51.4 million to $52.2 million with GAAP earnings of $0.82 to $0.90 and non-GAAP earnings of $0.91 to $1.1. For the first quarter of 2022, we expect revenue of $12.1 million to $12.3 million, and with GAAP earnings of $0.16 to $0.18 and non-GAAP earnings of $0.20 to $0.21. With that, now I'd like to turn the call over to Chris, and he'll run through some more of the detail.

Thank you. And good morning everyone. I'll review our financial results. And as always, I'll be discussing the results on a GAAP basis as well as on a non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's earnings release. You can also find a reconciliation of these non-GAAP measures to the nearest GAAP measure, on the last page of today's release. Also, please keep in mind that when comparing year-to-date results during 2020, we recognized $3.2 million of general administrative expenses related to our former CEO. As we reported earlier this morning, fourth quarter 2021 revenue was $11.9 million, an increase of 38.9% compared to the fourth quarter last year. And on a sequential basis, revenue grew by 9.1% over Q3 2021. Revenue from domestic sales increased 33.3% to $9.5 million during the fourth quarter and revenue from international sales increased 66.8% to $2.4 million. Overall, domestic revenue accounted for 79.8% of total revenue for the 2021 quarter compared to 83.1% for the 2020 quarter. Device revenue increased 49.7% to $8 million for the fourth quarter of 2021. This was driven by a 50.9% increase in monitor revenue and a 48.5% increase in IV pump revenue. The average selling price of our MRI-compatible IV infusion pump system during the fourth quarter 2021 was approximately $33,800, compared to approximately $37,600 for the fourth quarter 2020. This decrease relates to higher international unit sales and an unfavorable product sales mix during the current quarter. The average selling price of our MRI-compatible patient vital signs monitoring system during the fourth quarter '21, it was approximately $41,000 compared to approximately $37,500 in the same period of 2020. This increase relates to price increases we have been in the process of instituting across our monitor lineup, partially offset by an unfavorable product sales mix and higher international unit sales during the current quarter. Revenue from disposables and service increased 24.3% to $3.4 million for the fourth quarter 2021. And revenue from our maintenance contracts was consistent at $0.5 million for both periods. Gross margin was 77.9% for the '21 quarter compared to 75.3% for the '20 quarter. The increase in gross margin percent is a result of favorable overhead absorption from higher unit production required to meet customer demand, partially offset by higher international sales. We've commented in the past about supply chain matters, and we remain cautious about materials costs at this time. However, we continue to believe that any negative impact from higher costs will likely be limited and partially offset by higher levels of unit production required to satisfy customer demand, resulting in gross margins that are very consistent with our historical ranges. Operating expenses were $6.1 million or 51.7% of revenue, compared to $5.8 million or approximately 67.7% of revenue for the fourth quarter last year on a dollar basis. This increase is primarily due to higher bonus accruals, payroll and benefits costs, sales activities expenses, and costs related to regulatory activities, partially offset by lower legal and professional expenses. As a result, income from operations grew 378% to $3.1 million for the 2021 quarter. We recognized a tax benefit during the fourth quarter '21 of approximately $779,000 compared to tax expense of approximately $27,000 for the 2020 quarter. This decrease is due to tax benefits associated with the exercise and sale of stock options, partially offset by higher taxable income. Going forward, we expect a normalized tax rate. On a GAAP basis, net income was $0.31 per share compared to $0.05 for the 2020 quarter. On a non-GAAP basis, adjusted income was $0.33 per diluted share for the '21 quarter compared to $0.07 for the fourth quarter 2020. Cash from operations grew to $11.3 million for the full-year 2021, from $5.8 million for the 2020 year. For the three months ended December 31, 2021 and 2020, our free cash flow, a non-GAAP measure was $3.3 million and $2.4 million, respectively. Now, I'll provide some additional commentary around the financial guidance that Roger just reviewed. From a revenue standpoint, we're not providing guidance on a product-by-product basis. However, we expect growth across all products, with our monitor leading the way. We have also begun to forecast modest amounts of revenue from the sale of our FMD, anticipating these sales will ramp throughout the year. We expect gross margins that are consistent with historical ranges and expect operating expenses from higher sales commissions and headcount. We also expect additional costs in Q1 and Q2 of 2022 related to the testing and administrative matters from our 510(k) application. We expect the bulk of these additional regulatory and engineering costs will diminish significantly in the second half of the year. We also anticipate a normalized tax rate for 2022, as well as modest growth in our diluted share count. And with that, I'll turn the call over for questions.

Thank you. Our first question comes from Scott Henry with ROTH Capital. Your line is open. Please go ahead.

Thank you. Good morning and congratulations on the strong results and guidance for next year. I did have a couple of questions. First, with regards to the backlog, is that tilted in one category versus the other or is it largely split between monitors and pumps?

I would say, Scott, that we wouldn't normally get into the composition of the backlog, but I would say that we've got healthy levels of backlog across pumps, monitors, and smaller to a smaller extent, disposables.

Okay. And at some point does production catch up such that you feel the backlog or how should we think about what happens to that backlog over time? I mean, do you expect to work through it in 2022 or is it just kind of a steady-state backlog that we should think about?

I believe there is a normal state we can reach. We are discussing internally how much backlog we should maintain as a portion of future revenue while also managing lead times to ensure our customers don’t have to wait too long for our products.

Okay. Great. And then, you've really strong guidance for 2022 and I know Chris, you're typically conservative so it makes it even more impressive. Question is, is the guidance reliant on the next-generation pump coming out or does that factor into your outlook for 2022?

We haven't included any revenue from the next-generation pump. We still believe, as Roger mentioned, that the latter half of the year remains our base case. However, even if it arrives in that timeframe, it will still need to go through the sales cycle. Therefore, we might see some placements towards the end of the year, but the significant revenue contribution from the next-generation pump will not occur until 2023.

Yeah. Scott, it is Roger to pipe in; we didn't include any revenue from the new pump in this guidance.

Thank you for the clarification. I have one final question. Continuing with the topic of why 2022 appears strong, it seems you indicated that the monitor would be a key driver, at least that's my takeaway. Are you reaching a point where it's gaining traction, and what is the reason for the optimism regarding the monitors in 2022?

Maybe I can take that one, Chris, if you don't mind.

Yeah. Sure.

I use that word inflection a lot. We're really seeing that the stars are aligning with the monitor in a few aspects. First, our sales team has learned how to effectively position it, help physicians use it hands-on, and compete with the big competitor, Philips. This has been a significant factor in the sales team becoming proficient. Second, as Chris mentioned, we've been quite successful in increasing its price while also selling more units. Third, it's no secret that our major competitor Philips is dealing with other issues, which is likely benefiting us as well. Overall, the main reason for this positive change is that we now have enough product in the market. There are certainly 600 to 800 units out there now, which means it is no longer viewed as a risky or new product that buyers might hesitate to purchase. This is likely the largest factor influencing customer perception. I believe all these elements combined give us solid reasons to be very optimistic about the monitor's potential in the coming years.

Okay. Great. Thank you, Roger, that was really helpful. That should do it for me. Thanks again, guys, and congratulations.

Thanks.

Thanks, Scott.

Thank you. Our next question comes from Lisa Springer with Singular Research. Your line is open. Please go ahead.

Thank you and congratulations on a really strong quarter and a great year. My first question is if you could share your views on how sales are expected to perform in the U.S. market compared to the European market in 2022. Are you indicating that one market is stronger than the other?

The domestic market is definitely rebounding much more quickly since the COVID situation, which is what I mean by opening up. The COVID issues in Europe continue to hinder sales growth there. However, overall, the acceptance of the monitor and the positive perception from buyers are strong worldwide, including in Asia, and we even received a large order in Mexico a few weeks ago. This monitor is truly starting to impress, in my opinion.

Okay. Excellent. And can you comment on what assumptions you're making about supply chain issues in 2022? Are you're looking for them to ease in the second half of the year?

Like Chris said, it’s no fun. I think that's what Chris was trying to say. We deal with it quite a bit on a near-daily basis. But, having been in that fight now for the last several months, we feel two things. We feel that we've gotten our hands around the critical stock that we need. And as you alluded to, we do see that this is capacity from chip suppliers and so forth is starting to show a little glimmer of hope that it's not getting worse. And that it’s not going to continue for an exorbitantly long period of time.

Okay. And could you comment for me on the cadence of revenues, quarterly revenues you see in '22? Are you expecting the majority of revenues in the second half of the year?

No, I think we had a nice even roll out throughout the year. I think the one item that might impact second half revenue or cause it to accelerate a little bit more than the first half is just how the FMD ramps up. And again, it's not a lot of money that's coming in for the FMD, but we do anticipate the second half of the year to be higher than the first half when it comes to that product. We expect nice even growth to come through.

And then just one more question. You're building up quite a bit of cash on the balance sheet. I'm just wondering what are your priorities for allocating capital if you can comment on the cash position.

Do you want to take that, Chris?

Yeah. I think the board continues to have these discussions around capital. It's something that we are very aware of, and we don't have any more comments other than that at this point, but these are discussions that continue to consume a lot of time at the board level.

Okay. Thank you very much, gentlemen.

Thank you.

Thank you.

Thank you. And I'm showing no further questions at this time, and I would like to turn the conference back over to Roger Susi for any further remarks.

Well, thank you, and please forgive me again for being a bit repetitious, but I'd like to drive home just how very pleased we are with our results and how proud of the entire team's performance this year we all are. I had said earlier and believe that we are at an inflection point. We use that word a few times as customers realize more and more of the value of the products that our products bring to them, which in turn gives us faith in our guidance. And it's confirmation that we have the right products at the right time. And so we'll continue to make significant strides in building demand, and we look forward to expanding our momentum continually through 2022. As always, we remain steadfast in our optimism and look forward to speaking with you again soon. Thank you all.

This concludes today's conference call. Thank you for participating. You may now disconnect.