Welcome to the IRadimed Corporation Second Quarter of 2023 Financial Results Conference Call. As a reminder, this call is being recorded today, August 3, 2023, and contains time-sensitive information that is accurate only as of today. Earlier, IRadimed released its financial results for the second quarter of 2023. 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 on 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 focus 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's website at sec.gov. I would like to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi?

Good morning, and thank you for joining us today. We have more positive news to share with you, as highlighted in our announcement this morning. In the last quarter, I stated that we achieved our highest revenue quarter, and I'm pleased to note that Q2 2023 has now surpassed that as our best revenue quarter ever. This quarter also marks our eighth consecutive record revenue quarter. According to our press release, the revenue for the second quarter of 2023 reached $16.1 million, which is a 27% increase compared to the second quarter of 2022. Our GAAP diluted earnings per share for this quarter were $0.33, while our non-GAAP diluted earnings per share stood at $0.36, representing a 38% increase over Q2 2022. I am immensely proud of the remarkable efforts from our entire team. We have seen strong revenue and order growth across all product lines. The MRI patient vital signs monitor continues to make significant progress in the competitive market, and the growth in pump orders further boosts our confidence in our execution capabilities. As in the last quarter, we feel confident in increasing our guidance for the year, details of which will follow shortly. Our sales team has performed exceptionally well, demonstrated by the robust customer demand for our products. Our total backlog at the end of Q2 remains strong, providing excellent visibility and allowing us to adjust and allocate resources as needed amid potential supply issues, which are becoming less of a concern. However, we remain cautious, as evidenced by our inventory buildup. I would like to update you on our FDA efforts regarding the new 3870 MRIV pump. Since our last report, we have maintained ongoing discussions with the FDA, including a face-to-face meeting in the D.C. area, which we believe was the first of its kind for a device company since COVID. Although FDA personnel are mostly working remotely, we did see that some positions have been filled, including the lead reviewer and the assistant director for infusion devices, whom we had the opportunity to meet. We are optimistic that these new personnel will become familiar with IV pumps, allowing for an expedited review of our 510(k) resubmission, which we plan to finalize and submit in Q1 of next year. The FDA has been focused on clearing mostly repeat 510(k)s from other hospital IV pump suppliers, with companies like Fresenius and Baxter recently receiving clearances. Although another recall occurred earlier this week involving another IV pump manufacturer, which might also require a repeat 510(k), we must consider the impact this has on FDA staffing. Thus, we maintain a conservative view that sales of the current MRIV pump will remain strong, contributing to our revenue stream into 2025. Now, I would like to summarize our recent Q2 performance and express our confidence that this growth trajectory will continue. Therefore, we are raising our guidance, expecting revenue for the year to be between $64.5 million and $65.5 million. We have also increased our forecast for annual GAAP diluted earnings per share to a range of $1.25 to $1.28, and for non-GAAP diluted earnings to a range of $1.37 to $1.40. For the third quarter of 2023, which is typically our weakest, we anticipate reporting revenue between $16.1 million and $16.3 million, GAAP diluted earnings per share between $0.33 and $0.35, and non-GAAP diluted earnings per share between $0.36 and $0.38. I will now turn the call over to Jack Glenn, our CFO, to review the fiscal results for the quarter. Thank you, Jack.

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 quarter 2023 was $16.1 million, an increase of 27% compared to the second quarter of 2022. Domestic sales increased 20% to $12.9 million, and international sales increased 67% to $3.2 million. Overall, domestic revenue accounted for 80% of total revenue for Q2 2023 compared to 85% for Q2 of 2022. Device revenue increased 24% to $10.8 million. This was driven by a 17% increase in pump revenue and a 25% increase in monitor revenue. Revenue from disposables and services increased 40% to $4.8 million for the second quarter of 2023, while our maintenance contracts were consistent at $0.5 million for both periods. The gross margin was 75.5% for the 2023 quarter compared to 79.7% for the 2022 quarter. The decrease in gross margin is primarily due to the geographic mix as international sales with their inherently lower ASPs represented a larger portion of total sales in the quarter as compared to the second quarter of last year. Operating expenses were $7.2 million, or 44.8% of revenue, compared to $6 million, or 47% of revenue, for the second quarter of 2022. On a dollar basis, this increase was primarily due to higher general and administrative expenses for additional headcount and higher legal professional expenses. As a result, income from operations grew 19% to $5 million for the 2023 second quarter. We recognized a tax expense during the second quarter of 2023 of approximately $1.119 million, resulting in an effective tax rate of 21.1% compared to a tax expense of approximately $939,000 in the 2022 quarter. This increase is due to higher taxable income in 2023. On a GAAP basis, net income was $0.33 per diluted share compared to $0.26 for the quarter in 2022. On a non-GAAP basis, adjusted income was $0.36 per diluted share for the 2023 second quarter compared to $0.26 for the second quarter of 2022. Cash from operations was $4.6 million for the 3 months ended June 30, 2023, up from $1.4 million for the same period in 2022. For the 3 months ended June 30, 2023, and 2022, our free cash flow, a non-GAAP measure, was $3.1 million and $1.5 million, respectively. And with that, I will now turn the call over for questions. Operator?

Our first question comes from Frank Takkinen with Lake Street Capital Markets.

Congrats on another solid quarter. Roger, you spoke about it a little bit in the prepared remarks, but it sounds like ordering trends continue to be very favorable, especially in the monitoring business. Can you maybe expand on that a little bit more and then talk about any updates related to Philips and how we should think about the durability of monitoring growth on a go-forward basis?

Okay, Frank, it's great to talk to you. As you know, this new monitor has been in development for over four years now. However, it has gained significant traction in the past year. I want to acknowledge our sales team, who have been doing an excellent job of presenting it to our customers and building interest. Nevertheless, as you mentioned, Philips remains a major player in the U.S. market for MR monitoring. We have observed a decline in their market presence throughout the year, and that trend continues. On a positive note, we have been pleasantly surprised by the demand for the pump, which is seeing revenue performance that is nearly equal to the monitor. This is encouraging for us. Regarding Philips, we do not foresee any significant changes in their approach; it seems they are focusing on maximizing their current business, and we will continue to compete with them in that environment.

Got it. That makes sense. Maybe one follow-up in monitoring specifically. Can you talk about any pricing changes? I know you guys have been no longer disclosing ASPs. But my assumption is being the only game in town with Philips deemphasizing that business, you're able to take price. So I was just hoping you could talk about that a little bit more and if there's any forward plans to take more price as well.

Yes. Well, most of these domestic sales for both products are subject to a GPO contract in some way, shape or form. So it takes a long time to move pricing. But we've been working on that, as you know, for over a year. In fact, two of the major GPOs would have had their new pricing start, I believe in July, right, Jack?

Yes.

Yes. By the time we start receiving new quotes and orders at that level, it will likely not be in the third quarter due to the time needed to finalize these changes. However, by the fourth quarter and certainly throughout next year, we will begin to see the benefits of those price increases. The price increase was more significant for the monitor and somewhat smaller for the pump. While these changes may not be immediately evident in revenue, as we are increasing the number of devices sold alongside the price increase, you may notice it more in the cost of goods.

Okay. That's helpful. Then maybe for my last one, just one on the P&L. You guys have done a really nice job consistently growing the top line at a much faster rate than operating expenses. If you're looking out to becoming closer to a $100 million business over the next couple of years, should we think of any material changes to that cadence or any material changes that need to occur within the P&L to support a $100 million organization?

We're building a new building, but the stuff there we're talking about would be CapEx and not much anyhow, relatively speaking. So as far as the real cost, the ongoing cost like personnel, that sort of thing, no.

Yes, I would just add, as a percentage of sales, Frank, it's probably going to stay in line with where we're at, OpEx, as we move forward. Obviously, on the sale side is where the higher sales you'll see over the upcoming quarters that we plan to have some of that sales commission expense will be higher.

Okay. That's great. I'll stop there. Congrats again on all the progress.

Thank you.

Thank you.

This question comes from Scott Henry with ROTH Capital.

Thank you. Gentlemen, another very strong quarter. First question. When we think about the upside in the quarter and the upside in the guidance, do you think it's more a function of demand or just having additional capacity, meaning you can kind of always fill the demand as long as you can make the product?

I don't know. You want that one, Jack? I'm a little confused by it.

Well, I think, Scott, we've been benefiting certainly from having a very strong backlog, and we continue to have a very robust backlog, as Roger mentioned. So certainly, that gives us some visibility in the upcoming quarters from the demand side. But I think, yes, I mean, it's probably both of those things.

Okay. And then looking longer term, when we think about the monitor market, Roger, I'd be curious your take. Where would you estimate your market share is today? And how would you think about the annual monitor market in terms of size at your prices?

Well, the size we think of the market is maybe $125 million-ish. And so you can look at what we have out of that so far. So that would tell you we probably have strong upper 20s percent of that market share, right? So, yes. Unless our presence in this market has been increasing the overall market, which I really don't think that's significant. It could be a little bit, but I still think the overall market is around $125 million. So there you have it. And you can figure it out from there that we certainly must have 25%, 26%, 27% of that market.

And when you think about the growth rate for the monitor market, I mean, obviously, there's a pricing component, an inflationary component. But how should we think about the volume as well as perhaps, as you just mentioned and alluded to, perhaps they order more monitors if they have a better monitor? How do you think about the growth of that $125 million?

We are optimistic about our growth potential. Our strategy involves engaging multiple power users, similar to our approach with pumps, where these users integrate our products into their workflows. Due to the portability of our scanners, many users utilize more than one unit, as seen with approximately 20% of our customer base being power users. While we have not fully explored this market potential yet, we believe it will significantly help us surpass the $125 million mark. Currently, we are selling a considerable number of units, particularly in the U.S. market, where many customers are transitioning from Phillips products, which they've used for many years, to our offerings.

Okay, great. Final question. The FMD rollout, obviously still very early days. Given the past couple quarters, how do you think about the size of that potential revenue stream?

We're doing okay. We've discussed this before, and as I mentioned last time, selling this product differs from selling a pump or monitor. It has taken our sales team some time to find their footing. While it's the same target, it doesn't generate the same excitement in buyers as pumps and monitors do, which they use daily. FMD is a product you buy, set up, and forget. However, our sales team is starting to recognize this, and they are improving their skills. Consequently, we are selling more, and the business is growing nicely. The entire market is still under $20 million globally. Is there potential for growth? Absolutely. Every MRI-equipped doorway should be protected by our device. The current small market presence is likely due to the smaller players who mostly rely on catalogs and advertisements, lacking the direct sales approach that we employ. That said, I'm not overly optimistic right now, but if we could capture a portion of the market that amounts to $10 million, I would be very satisfied with that.

Okay, great. Thank you for the color.

All right, Scott. Good to talk to you.

Our next question comes from Chris with Singular Research, and this is our last question.

Yes. I'm in for Ashim. Can you give us an update on the status of your supply chain challenges?

Well, like I alluded to you, they're fading away. It was starting to get better even 2 quarters ago. So last quarter, I mentioned that we still keep a watchful eye on it, which is what I repeated today. Yes. A year ago, there were fires every week. There was a major problem every week that we dealt with to solve a supply chain problem. That's fading into the background pretty far at this point. But we still are keeping a careful eye on it. There's still some spot shortages of this or that. But in general, I don't predict much risk any longer, significant chance or risk any longer from supply chain issues.

Okay. And how is the new FMD product helping in the cross-selling efforts?

It's great to see that the new FMD product is providing an opportunity for cross-selling. In hospitals, nearly every MRI door could benefit from an FMD, whether they're currently looking for a monitor or a pump. This creates an additional incentive to engage with customers and present them with another option. The potential for cross usage is a valuable advantage for our sales team.

Can you comment on the overall situation?

If you were considering bundling or something similar, we are looking at that opportunity as well. We'll see how that develops in the coming quarters.

Okay. Can you comment on the overall pricing environment for these products?

Well, our prices are going up, as we said. I mean, we've been increasing pricing. So as you can see, we've been selling more numbers of units, and we've been increasing the cost, the selling price of those units. So, it's a check plus for both situations.

Thank you. I would now like to turn the conference back to Roger Susi for closing remarks.

Thank you, operator. And again, it's with great pleasure that we've reported our Q2 2023 results, demonstrating yet another quarter of very strong growth. It is also with great pride that we can guide that we expect strong performance as the year progresses. With that, I look forward to reporting our future successes as this year continues. And thank you very much.

Thank you. This concludes the call. You may now disconnect.