Iradimed Corp Q4 FY2022 Earnings Call

Ladies and gentlemen, welcome to IRadimed Corporation Fourth Quarter and Full Year 2022 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 2, 2023, and contains time-sensitive information that is accurate only as of today. Earlier, IRadimed released its financial results for the fourth quarter and full-year 2022. A copy of this press release announcing the company's earnings is available under the heading 'News' on their website at iradimed.com. A press release copy 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 in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements focused on 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 reports filed with the Securities and Exchange Commission, which may be obtained free from the SEC website at sec.gov. I would now like to turn the call over to Mr. Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi, please go ahead.

Thank you. And thank you all for joining us on today's earnings call. It's truly wonderful to report that once again IRadimed had yet another excellent quarter of revenue and earnings growth. As we reported in this morning's release Q4 2022 was our top revenue quarter ever and our sixth consecutive quarter of record revenues. I'm also very pleased to announce today that as you may have seen; our Board of Directors has approved a special cash dividend of $1.05 per share. Allow me to take a short dive into the financial performance we have achieved. As reported in this morning's release, fourth quarter revenue was $14.9 million, a 25% increase over the fourth quarter last year, with GAAP diluted earnings per share for that fourth quarter of $0.29. For the full year ended December 31, 2022, our revenue was $53.3 million, a 28% increase over the prior year which ended in December 2021. GAAP diluted earnings per share for the full year 2022 has come in at $1.02 per share, a 37% increase over the full year in 2021. Our teams from sales to purchasing and production engineering to service regulatory to finance dealt not only with the challenges of delivering this 28% growth, but they did it in the face of continuing supply disruptions and regulatory challenges as well as worldwide tension. I'm extraordinarily pleased with these results and the extraordinary efforts of our entire IRadimed team. The sales team did an exceptional job this past year with bookings outstripping our fantastic 2022 shipment volume such that we enter 2023 with an even larger backlog than we started. Customer demand is strong for all the product lines and with the continuing problems of our competitors in the MR monitor space and the reported business directions, we feel very confident in continuing record revenue and earnings growth into 2023. Additionally, the strong backlog provides us excellent visibility and allows us to maneuver and reallocate resources as supply issues may arise. 2022 sales growth was well balanced and strong for both the pump and the monitor product lines, with an increasing number of new FMD products shipping as well, though we will expect monitor line growth to become a leading driver in 2023. Last quarter, as reported previously, we withdrew the 510(k) for our new 3870 MR IV pump. And we will refile it later this year. Although this was unfortunate and will lead to a delay in the launch of this new pump, as you see IRadimed's growth has been and I firmly believe will remain extraordinary. Though one door may have been closed temporarily, another has apparently opened. The MR monitor business is simply on fire and we expect 2023 to deliver revenue growth near 20% again. You shall hear more of this later and I would welcome any questions regarding details of either revenue or FDA issues in our Q&A session. As we announced a few weeks earlier, we expect to report revenue in 2023 of $61 million to $63 million, with GAAP diluted earnings per share of $1.10 to $1.20 and non-GAAP diluted earnings of $1.23 to $1.34. For the first quarter 2023, we expect to report revenues of $14.6 million to $14.9 million, with GAAP diluted earnings per share of $0.23 to $0.25 and non-GAAP diluted earnings per share of $0.26 to $0.28. Now I'd like to turn the call over to our relatively new CFO, Jack Glenn, to review the financial results of the quarter.

Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and a non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's earnings release and a reconciliation of these non-GAAP measures to the GAAP measure on the last page of today's release. As we reported earlier this morning, revenue in the fourth quarter of 2022 was $14.9 million, an increase of 25% compared to the fourth quarter of 2021. On a sequential basis, revenue grew 11% over Q3 of 2022. Domestic sales increased 28% to $12.2 million compared to $9.5 million in the fourth quarter of 2021. International sales increased 8% in the quarter to $2.6 million. Overall, domestic revenue accounted for 82% of total revenue for Q4 2022 compared to 80% for Q4 of 2021. Device revenue increased 23% to $9.8 million. This was driven by a 51% increase in monitor revenue as our sales team continued to execute and gain market share in the monitoring business. Revenue from disposables and services increased 32% to $4.5 million for the fourth quarter of 2022, while our maintenance contracts increased 17% to $595,000. The gross margin was 75.5% for the 2022 quarter compared to 77.9% for the 2021 quarter. For the full year 2022, the gross margin was 77.4%. The big piece in gross margin for the quarter was primarily due to the higher input costs and variations in the product mix. Operating expenses were $7 million or 47% of revenue compared to $6.1 million or 52% of revenue for the fourth quarter of 2021. On a dollar basis, this increase is primarily due to higher sales commissions and sales activities, higher general and administrative expenses for additional headcount, and higher legal and professional expenses. As a result, income from operations grew 37% to $4.3 million for the fourth quarter of 2022. We recognized a tax expense during the fourth quarter of 2022 of approximately $1,031,000 compared to a tax benefit of approximately $779,000 in the fourth quarter of 2021. The tax benefit in the fourth quarter of 2021 was primarily due to a one-time benefit associated with stock-based compensation expense. The effective tax rate for the year of 2022 was 20.7%. On a GAAP basis, net income was $0.29 per diluted share compared to $0.31 for the 2021 quarter with the difference due to the tax benefit of Q4 in 2021. On a non-GAAP basis, adjusted income was $0.32 per diluted share for the 2022 fourth quarter compared to $0.33 for the fourth quarter of 2021. Cash from operations was $3 million for the three months that ended December 31, 2022, down from $3.4 million for the same period in 2021. For the three months ended December 31, 2022 and 2021, our free cash flow, a non-GAAP measure, was $2.6 million and $3.2 million, respectively. And with that, I will now turn the call over for questions.

Thank you. We'll now begin the question-and-answer session. Our first question is from Scott Henry with ROTH Capital. Your line is open.

Thank you. Good morning and congratulations on the strong results. I did have a couple of questions. First, perhaps I missed it, but did you give the average price of the pumps and monitors during the quarter?

No, we didn't, Scott. We've discussed it internally, and we're not going to provide the specifics on the average selling prices as we have in the past, unless there is a significant change. The calculations can be quite complex, especially considering the different types of products, like monitors and pumps. However, the average selling prices in the quarter were solid, and there was no significant difference from previous quarters.

Thank you for that information. The disposables and services category performed exceptionally well, exceeding our previous expectations by $1 million, which is unusual as we've often seen lower figures. Can you provide insights on what contributed to this performance? Additionally, should we anticipate this trend to continue, or was it just a one-time occurrence?

I can take this one briefly before Jack chimes in. We saw a significant increase in the sales of IV sets, particularly from the disposable items associated with the pumps and sterile sets. Additionally, electrodes, which are the main accessories for the monitors, have been performing exceptionally well. Since we launched the monitors last year, we have experienced remarkable growth, and the electrodes are contributing to that success. We've also seen a positive trend in maintenance sales, which we had shifted our focus away from about two years ago. We have since adjusted our approach, and maintenance sales are now back on track, exceeding previous levels prior to that shift. Overall, the combination of increased sales from accessories and maintenance items indicates that we are doing well. We expect this trend to continue as the growing demand for monitors will support electrode sales, and the growth rate of disposable items is consistent with pump sales, which also saw positive growth this past year. We believe this trend is sustainable, and we would be surprised if it resulted in any sort of plateau at this stage.

Okay. Great. Thank you, Roger. And since I got you on the line, maybe could you give a little more color on the competitive landscape? I mean you talked about competitor problems in the monitor market. Just any kind of at least big picture idea of what you're seeing out there and how we should factor that into 2023 and beyond?

Yes. I don't know how many of you had the chance to listen to Philips' recent earnings call, which I believe took place on Monday, or to follow their activities. They don't specifically separate out the area where we compete with them in the MR monitor space, which is a relatively small part of their overall business. However, from their call, it was evident that they will be removing various items from their catalog and that they can no longer be everything to everyone. They plan to focus their resources on high-growth, large, scalable businesses. Given this context, I believe that our competition with them in MR patient monitoring does not fit into those categories. Furthermore, we've observed a significant reduction in their sales force; they once operated over 40 territories, but it's now well under 20, according to our information. All of this suggests a clear trend, and I recommend everyone take a look at Philips' call.

Thank you, Roger, for the information. That's helpful. Moving on to the income statement, gross margins have fluctuated between 76% and close to 80%. The second and third quarters showed higher margins, while the first and fourth quarters were lower. Should I consider the average of those margins as a solid indicator despite the variability, or do you believe there is a trend in one direction or another?

No, I think you hit it. If you look back over many quarters, we've consistently been in that range. I believe that range is quite narrow, plus or minus 1.5% or 2% around the average; I think it's a fairly tight grouping. So, I don't expect that we will be able to significantly break out of the high end of that and sustain it, but we also won't fall below that range. To answer your question, yes, I believe the average of what you've seen in these last many quarters is accurate.

Okay. Great. Thank you. For my final question for Jack, I noticed that other income is showing a positive 450. Is that primarily due to higher interest rates on the cash balance or are there other factors at play?

Yes, that's correct. With our cash and the higher interest rates, we are now experiencing a nice interest income coming in on a quarterly basis.

Okay. Great. Thank you, you both for taking the questions.

Thank you.

Thanks, Scott. Good to talk to you.

Thank you. One moment for our next question. And our next question coming from the line of Christopher Sakai with Singular Research. Your line is open.

Hi, thank you, everyone. This is Sean for Chris. Congratulations on the impressive results and the dividend announcement, which is very encouraging. Could you provide some insight on the trend of gross margins for disposables?

It's quite consistent. So to answer your question, while we are seeing increases in the prices of some raw materials, such as PVC and polycarbonate, these cost changes have not significantly affected the price of our IV sets. The molding process keeps the cost impact minimal, so there haven't been any adverse effects on our cost structure for disposables.

Okay. And given on the inflation and supply issues and all can we assume that you guys have been reasonably able to pass on those price increases of the inputs to your customers?

Yes, we did that relatively early, then COVID hit us about a year and a half ago, around six or seven quarters ago. We started experiencing issues with components, particularly electronic ones, which really caused us some trouble. We managed to negotiate price increases for key products like the pump and the monitor. Some of these price increases have already taken effect due to the nature of contracts and the time they require. Others, which we negotiated over a year ago, will take effect over the next six months. So, yes, we have had price increases—some are already reflected in our earnings, while others have been negotiated and will impact our results in the next two quarters.

Great. And to an extent you can share with us the dynamic of disposable per device. I'm sure you track a rough color you can give how that is trending. That would be very helpful.

Maybe you can jump in on that one, Jack.

I'm not sure if I visit on as far as the trend on the disposables.

I guess sales of the disposable trend.

Yes. I think Roger mentioned some of this earlier regarding the disposables, and the growth there is related to the growth in both the pumps and the monitors. As a portion of our total sales, I believe it has been around 20% to 25%, and in the last quarter, it was approximately 30%. So, there has been some growth. However, I anticipate it will likely remain within that same range as a percentage of sales going forward, which closely aligns with our growth in the devices.

Perfect.

I might add, IRadimed is a little bit different, though, we have a disposable that's a nice piece of revenue and it has a nice margin, unlike a lot of companies, they may build their business model around the disposable and offer the thing that uses the disposable, the razor, if you will, at not so great a margin. If you delve into our margins at that detail, these gross margins that we talked about a few minutes ago, these are the same, whether it's the device or the disposable. So I mean, that should tell you a lot more about our model. It's not quite maybe typical in that regard.

Wonderful. And any color on in terms of further interactions you guys have had recently or over the last six months with the providers in terms of their capital spending outlook. Things have changed a lot in the last two years or three years. So I was wondering, any color you can provide?

It seems like things are looking good for us. We've been achieving significant revenue growth. In our niche market, our capital expenditures remain strong and beneficial compared to other markets where I've heard spending can be tighter. Overall, our customers continue to show positive engagement with what we offer.

Absolutely. One way to consider this is that while things may appear challenging or different for an average medical device provider, given your niche market and any capital constraints that providers may face, you are largely unaffected, correct? Would you agree with that?

Oh, yes. I would say that in our little corner of the medical device universe, we're somewhat insulated and haven't been affected by the other areas that may be experiencing a decline due to capital expenditure allocation. We're kind of under the radar there.

Yes, right. Good place to be on that. And finally, right, finally, it also looks like you guys have been maybe under the radar is not the right word, but sort of unaffected by the supply chain issues and generally, the device industry has been facing, especially offshore and all looks like that also has not affected you guys or maybe not as much as some of the other players. Any comments on that or any color on that?

It might seem that way, but we've put in a lot of effort and faced some close calls. It hasn’t been an easy process. Every day has presented challenges. However, our size and margin have been beneficial. We’ve had instances where we had to pay significantly more for components that should have cost much less. We're willing to make those investments to keep our operations running. We’re also very flexible with substituting components. Our design and expertise are centralized, unlike larger companies that often become slower and less adaptable as they grow. Considering all this, we appreciate our materials, purchasing, and manufacturing teams, along with a healthy backlog that allows us to shift our focus as we tackle various issues throughout the quarter. There's quite a bit of juggling happening, but we’ve navigated it successfully. Additionally, as you might have seen in the news, supply chain problems are beginning to ease. We're starting to receive parts at reasonable prices again after long waits in some cases.

Great.

Hope that answers your question.

Yes, yes. So great, well, that kudos to execution and management here, considering there has been a lot of upheaval under the surface, but it looks like you have managed to keep the surface calm and deliver to your customers. So great. Thanks for the color. That's all I got.

You're welcome. Good to talk to you.

Thanks.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Susi for any closing remarks.

Thank you, Operator. Well, we couldn't be more pleased to have had this opportunity to report such a strong gain for 2022 and to share our expectations for 2023. IRadimed is running very efficiently and its products are being adopted at an accelerating rate, with margins at levels that many of our peers may envy. All company areas are growing, including new physical plant at a recently purchased site, which we are now designing to meet our continuing growth needs. With that, I look forward to reporting our future successes as the year progresses, and thank you all.

Ladies and gentlemen, this concludes the call. Thank you for participating. You may now disconnect.