Welcome to the IRadimed Corporation Third Quarter of 2023 Financial Results Conference Call. As a reminder, this call is being recorded today, November 3, 2023, and contains time-sensitive information that is accurate only today. Earlier, IRadimed released its financial results for the third 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 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 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, please go ahead.

Good morning. Thank you for joining us on today's call. I'm very pleased to report our ninth consecutive record quarter. With Q3 '23, again showing our ability to execute and grow our business. This morning's press release announced third quarter '23 revenue came in at $16.5 million, representing a 23% increase over the third quarter of 2022. GAAP diluted earnings per share for the third quarter were $0.40. Non-GAAP diluted earnings per share for the third quarter of '23 was $0.43 per share, a 48% increase over Q2 of '22. Our entire team remains strong, committed, and capable of pulling together to bring in orders, needed materials, production plans, delivery, and customer setup. The MRI patient vital signs monitor continues to gain acceptance with new customers, with some very large orders this past quarter. Sales of our MR IV pump remain strong. With the new program for field replacements of older pumps, we anticipate growth of this older product line as well. As with last quarter, we again feel comfortable raising our guidance for the year, which we shall outline in a moment. Q3 is typically our weakest quarter for new bookings due to the summer holidays, yet still, our total backlog built year-to-date continues to be sizable. As I have said before, a strong backlog provides excellent visibility and allows us to maneuver and reallocate resources as supply issues may arise. However, we are striving to reduce this backlog and deliver products with less customer lead time. We recently quoted domestic lead times to our customers of 90 days and international at 120. But we plan to reduce some lead time by close to 30 days in the coming quarter. This is being done through an acceleration of production and materials flow to provide customers quicker access to the products that they have purchased. Now, I'd like to provide progress regarding our FDA efforts surrounding the new 3870 MRI IV pump. Last quarter, I spoke of the massive testing that's underway here, which continues with some tests finished, while still others remain in progress. I'd like to note that the results are positive so far. It's a matter of continued efforts and progress to complete the test. As further support for our internal 510(k) team, we have engaged two external support consultants. One for technical help, and the other for statutory and relationship assistance, neither is inexpensive. Still, we feel it necessary to ensure 510(k) success with minimal FDA review time. We saw such a payoff for using external support with the recent 8-month approval of another manufacturer's new IV pump. We are targeting late Q1 for refiling the new 3870's 510(k); should our new external help suggest additional or different elements that cost us additional time, we will consider such input carefully. The hope is that such external input should shorten the time FDA needs for clearance. Now I'd like to recap our Q3 performance and indicate our confidence that this upward trajectory will continue. Therefore, we now announce an increase in our guidance with the expected revenue for the year 2023 of $65 million to $65.5 million. We also raised the forecasted annual GAAP diluted earnings per share to $1.34 to $1.37, and the non-GAAP diluted earnings of $1.48 to $1.51. For the fourth quarter of 2023, we expect to report revenue of $16.9 million to $17.4 million, with GAAP diluted earnings per share of $0.35 to $0.38 and non-GAAP diluted earnings per share of $0.38 to $0.41. Now I'd like to turn the call over to Jack Glenn, our CFO, to review the financial results for the quarter.

Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and 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 measures on the last page of today's release. As we reported earlier this morning, revenue in the third quarter of 2023 was $16.5 million, an increase of 23% compared to the third quarter of 2022. Domestic sales increased 29% to $13.9 million, and international sales remained flat at $2.6 million. Overall, domestic revenue accounted for 85% of total revenue for Q3 of 2023 compared to 81% for Q3 of 2022. Device revenue increased 25% to $11.8 million. This was driven by a 40% increase in monitor revenue. Revenue from disposables and services increased 24% to $4.2 million for the third quarter of '23, while our maintenance contracts were consistent at $0.5 million for both periods. The gross margin was 77.8% for the 2023 quarter compared to 78.67% for the 2022 quarter. The decrease in gross margin is primarily due to higher overhead costs and increased raw material costs. Operating expenses were $6.9 million or 42% of revenue compared to $6.4 million or 47.8% of revenue for the third quarter of 2022. On a dollar basis, this increase is primarily due to higher general and administrative expenses for additional headcount, higher regulatory, legal, professional expenses, and increased benefit expenses. As a result, income from operations grew 43% to $5.9 million for the 2023 third quarter. We recognized a tax expense during the third quarter of 2023 of approximately $1,341,000, resulting in an effective tax rate of 20.9% compared to a tax expense of approximately $810,000 in the 2022 quarter. This increase is due to higher taxable income in 2023. On a GAAP basis, net income was $0.40 per diluted share compared to $0.27 for the 2022 quarter. On a non-GAAP basis, adjusted income was $0.43 per diluted share for the '23 third quarter compared to $0.27 for the third quarter of 2022. Cash from operations was $1.4 million for the three months ended September 30, 2023, down from $3.9 million for the same period in 2022. And for the three months ended September 30, 2023 and 2022, our free cash flow, a non-GAAP measure was $1 million and $3.4 million, respectively. And with that, I will now turn the call over for questions. Operator?

Our first question will come from Scott Henry of Roth Capital Partners.

Congratulations on another strong quarter. Just a couple of questions. First, any thoughts on what you're seeing on the pricing environment? And perhaps with the monitors, how is the shift between U.S. and international?

Our pricing has increased, particularly with the monitor, due to contract negotiations over the past 18 months. The largest price increases began in July, and we have seen a decent increase in monitor prices. The price increase for the pump, however, was minimal and not significant. We are not encountering any pushback regarding this. On the international front, monitor sales are performing very well. The growth rate and adoption of monitors in international markets have been impressive, both in our established markets and new areas. We’ve had some encouraging developments in Mexico and Colombia, presenting some great opportunities for the monitor. Overall, we have positive reports to share.

Okay, great. And then on the monitor side, we know one of your competitors appears to be less focused on that segment. Has anything changed on that landscape? Or do you still feel you are in a position to take share right now?

Good question. They are less focused. They still have huge problems that are in the news at least weekly, so you can tell where their focus is. We had another advantage during COVID from them because not only were they not so focused, which remains the case generally, but their deliveries got extremely long because they had supply chain issues much greater than we did. We see them catching up there. So that's one point for them. It removes one of their hurdles. Overall, their focus is still light; the size of the sales force is still smaller than it had been, and they have their hands full dealing with bigger issues, just the same.

Okay, great, Roger. And final question, gross margin strong in the third quarter. As we start to think about 2024 and 2025, with a higher volume of monitors and pumps. How do you think about the 78%, 79%, does that start to move in on the ceiling for gross margins? Or do you think with higher volumes could you reach that 80% level?

During COVID, we lost some pricing advantage with suppliers and had to pay a lot for components just to obtain them, which has led to a noticeable increase in our raw material costs. We recognize there is room for improvement, but it won't be a quick fix. This is a focus for us in 2024. The semiconductor supply issues have changed, with surplus now and discussions about reducing output, presenting an opportunity to recover losses from COVID and lower costs moving forward. While it won't happen immediately, I'm optimistic about the positive impact over the coming year. In short, I hope we can increase our gross margin.

Our next question will come from Frank Takkinen of Lake Street Capital Markets LLC. For the coming year in 2024, we anticipate that the semiconductor supply shortages have turned into surpluses, with suppliers contemplating cuts and scaling back some production. This presents an opportunity to regain lost ground during COVID and lower costs moving forward. While the recovery won't be immediate, I am optimistic about the positive effects in the upcoming year. In short, yes, I hope we can enhance our gross margin.

This is Nelson Cox on for Frank. Congrats on another strong quarter. Jack, you mentioned Q3 being a seasonally slower quarter for orders. I was hoping to hear your expectations for Q4?

Well, the flip is Q4 is usually a big quarter for us. Yes. Q3 is conventionally light, and Q4 is conventionally strong. Last year, I think we also had a pretty strong Q1 because a lot of orders carried over from our good Q4 last year. Yes, we don't expect the seasonality factor to change.

Got it. And then regarding the customer announcement to discontinue service on IV pumps over 7 years old. Can you help us understand your installed base better to try and place context around how many of your pumps could be over 7 years old? And how large could that increase per year going forward?

I think I somehow lost that number.

I think we think that it's somewhere in the range of 1,500 to 2,000 units out there that are in that category, over 7 years.

Yes. So a large number of pumps. We've quoted, I think, close to 400 already. So that kicks in at the end of December, right? We see that as being a factor that might bring in some orders certainly in Q4, but much more so in Q1 and Q2. We anticipate seeing those turn into orders here very soon. I think we expect the strength to really show in Q1.

Our next question will come from Frank DiLorenzo of Singular Research.

Can you expound upon the strength you saw in the ferromagnetic detection systems this past quarter? And can you talk about to what extent you may be able to maintain growth going forward for the fourth quarter and into next year?

Yes. Well, the sales have been growing slowly, frankly, with the FMD product. It's a matter of our sales force really learning what the critical call point is. International demand has actually grown quicker than our domestic, but the market is quite large compared to where we're at now. We've got a decent number on the backlog, but it is not up to expectations. I think with the U.S. domestic market, the sale is a little different for our sales folks compared to selling a pump or a monitor. As they learn the selling approach, we see different territories starting to sell FMDs as those different reps in various territories understand their target customers better. International sales seem to be picking up quicker for them. So there is a long runway ahead for the FMD, with lots of opportunities. In 2024 in the U.S., we expect to gain further insights on how to properly position that product and to whom to target to increase sales.

Okay. One other question regarding your next-generation pump. Can you talk a little bit about your strategy outside the U.S. for that as far as getting approvals and launch timing going forward?

Yes, we won't focus on obtaining the CE Mark for that one until mid to late summer. Our team is currently working on the 510(K) and preparing the technical file and getting our notified body on board to do that. With the changes in Europe, although they've delayed all this MDR stuff for products like ours, the notified bodies are still applying the logic of future mandatory MDR currently. They're taking a long time to review technical files and clear them. An estimate would be mid-2025 before we would have a CE-marked pump. Having said that, this probably accounts for one-third of our international business. The other two-thirds of it doesn't need a CE mark, so we will enter those markets much sooner, as soon as we're launched in the U.S.

This will end the Q&A session. I would now like to turn the conference back to Roger Susi for closing remarks.

Thank you, operator. Again, it's with great pleasure to report our Q3 2023 results, demonstrating yet another quarter of strong growth. It is also a great pride that we can guide that we expect strong performance as the year concludes. With that, I look forward to reporting our year-end success. Thank you all for participating in today's call.

Thank you. This does conclude the call. You may now disconnect. Have a pleasant day and enjoy your weekend.