Iradimed Corp Q2 FY2024 Earnings Call

Welcome to the IRadimed Corporation Second Quarter of 2024 Financial Results Conference Call. This call is being recorded today, August 1, 2024, and contains time-sensitive accurate information only today. Earlier, IRadimed released its financial results for the second quarter of 2024. A copy of this press release announcing the company's earnings is available under the News section on our website at iradimed.com. The press release was also provided 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 and on the company's website at iradimed.com, and a replay will be available on the website for the next 30 days. Some of the information in today's session will constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future performance, results, plans, and events that may involve the company's expected future results. IRadimed reminds you that future results may differ significantly from these forward-looking statements due to various risk factors. For more information on the relevant risks and uncertainties that may impact the company's business, please refer to the Risk Factors section of the company's most recent reports filed with the Securities and Exchange Commission, available for free on the SEC's website at sec.gov. I would now like to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi?

Thank you, operator, and good morning, and thank you all for joining us on today's call. I'm very happy to report yet another record quarter. In fact, our 12th consecutive record quarter. Driving this record quarter was revenue at over $17.9 million. In addition, gross profit was up, reaching 78%, and earnings came in very strong as well, with GAAP diluted earnings per share increasing 19% from Q1 of this year. Recall that the pump order intake rate in Q1 was very strong. And Q2 now reflects the revenue generated as we move to keep the pump backlog in check. Plus, this pump backlog being mostly domestic results in the sizable gross margin. Once again, our team is executing very well, and product demand remains strong, actually extraordinary in the case of the current 3860 model IV pumps. We are on target to have the strong year that we have planned, even though the new 3870 IV pump is still not on the menu. I'll defer to Matt, who's standing in for our CFO, Jack Glenn, this morning, for more details regarding the revenue and earnings comparisons. So let me move on to the new pump progress. It's all about getting that clearance that we've been working so hard to achieve. Of course, key to this is having a clear, concise complete 510(k) filed soon. My recent commitment for 510(k) delivery was in August, and we are very confident that it will be in the FDA's hands in these next few weeks of August. Again, the FDA will ask questions, and sometimes that will transpire during the review and additional question period. We will have a better indication of the time required for final clearance of the 510(k) after receiving that first response and list of questions that we fully expect from the FDA, which we expect to see in late October. At this point, as I have stated in the past, the 3870 will be a 2026 story revenue-wise. Clearance in mid-2025 means that we would expect only light revenues from this new device in Q4 '25, as well as the sale and shipment cycles are measured in months, not days. Due to strong increases in sales of the existing pump, helped by order replacements of these older pumps that are 7 years and beyond, which we started seeing strongly on January 1. We have now stepped up efforts on the Monitor business via new sales strategies and incentives. Though the Monitor business has been steady and strong, we believe these new incentives and methods will drive Monitor growth to a new level. There's also been a steady adoption of our FMD device. This relatively new offering is gaining attention in the market, though there is inertia due to the placement of many of these units tied to the construction of new MR suites. Construction is a rather drawn-out process and subject to delay, which places a limit on the speed of delivery and revenue for the FMD line, dissimilar to the pump and Monitor segments. Still, as you will hear from Matt, revenue for the FMD is growing. Finally, a bit about our new headquarters. Construction is well underway, and the weather has not overly cooled the schedule. The walls and roof should be up and nearly dried in by the time of my next report, with our expectation of moving just before next summer, right in time to begin production of the newly cleared 3870 MR pump. Now before Matt steps in for Jack, who is on leave this morning, I'd like to finish with a report of what we see in Q3. For the third quarter 2024 financial guidance, we expect revenue of $18 million to $18.2 million, with GAAP diluted earnings per share of $0.34 to $0.37 and non-GAAP diluted earnings per share of $0.38 to $0.41. Accordingly, we reiterate our guidance for the full year '24, and we expect to report revenues of $72 million to $74 million, with GAAP diluted earnings per share annually of $1.37 to $1.47 and non-GAAP diluted earnings per share of $1.52 to $1.62. Now I'd like to turn the call over to Matt Garner, who, as I said, is going to stand in for Jack, who is on leave this morning. Matt?

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 measures on the last page of today's release. As we reported earlier this morning, revenue in the second quarter of 2024 was $17.9 million, an increase of 11% compared to the second quarter of 2023. This increase was due to strong bookings and resulting backlog for our pump in the first quarter. This strength in bookings for the pump continued into the second quarter. Domestic sales increased 19% to $15.5 million, and international sales decreased 23% to $2.4 million. Overall, domestic revenue accounted for approximately 86% of total revenue for Q2 2024 compared to 80% for Q2 of 2023. The device revenue increased 17% to $12.7 million. This was driven by a 52% increase in pump revenue. Revenue from disposables and services decreased 3% to $4.7 million for the second quarter of 2024, while our maintenance contracts remained stable at $600,000. As Roger mentioned, the gross margin was 78.1% for the second quarter of 2024 compared to 75.5% for the 2023 quarter. This increase in gross margin is primarily due to a favorable geographic sales mix of domestic revenue, a decrease in raw material costs, and direct labor efficiencies. Operating expenses were $8.4 million or 46% of revenue compared to $7.2 million or 44% of revenue for the second quarter of 2023. On a dollar basis, this increase is primarily due to higher sales and marketing expenses for higher sales commissions and sales activity expenses, along with higher regulatory and payroll and benefit expenses. The noted strength in the gross margin resulted in income from operations growing 13.4% to $5.6 million for the 2024 second quarter. We recognized a tax expense of approximately $1.4 million during the second quarter of 2024, resulting in an effective tax rate of 21.8% for the quarter, which is in line with the effective tax rate of 21.1% in 2023. On a GAAP basis, net income was $0.38 per diluted share, an increase of 15% compared to $0.33 for the 2023 quarter. On a non-GAAP basis, adjusted income was $0.42 per diluted share for the second quarter of 2024 compared to $0.36 for the second quarter of 2023. Cash from operations was $6.6 million for the three months ended June 30, 2024, which is up $3.5 million compared to the same period in 2023. For the three months ended June 30, 2024, our free cash flow, a non-GAAP measure, was $5.4 million, up from $3.1 million for the same period in 2023. And with that, I will turn the call over for questions. Operator?

And our first question will come from Frank Takkinen of Lake Street Capital Markets.

Congrats on all the progress. I wanted to start with one question on the revenue growth expectations line item. Obviously, pumps are growing very well recently, given the 7-plus-year-old warranty force conversion. Should we expect that to continue through the end of the year? Or is that normalized down a little bit lower than the 52% growth rate this year, and then monitors come back? Or maybe just talk a little bit about growth expectations for pumps and monitors for the back half of the year?

Yes, Frank, good to talk to you. Roger here. So yes, we'll see revenue from this uptick in the 3860, the original, the existing old IV pump, which, as you know, we kicked off with this notice to our customers that we weren't going to do the service contracts on 7-plus-year-old pumps. So that is coming in fairly steadily. So your question was, is it going to grow? Well, it was, as I mentioned, surprisingly large, frankly, to us what happened. And no, I don't think it's going to grow more, but I do see it carrying us through the rest of these final two quarters of '24 and even into '25. So if you will, we've stepped up to quite a nice plateau. It's some 35%, 40% boost to this 3860 product line. And we feel that's going to stay there. Now it's not going to grow to 45% or 50%. No, but it's going to be very healthy and very much unexpected from what we were looking at two quarters ago when we first launched this program. So it will remain a healthy booster to our revenues, as I said, into 2025. So given that, this is why I mentioned that we're incentivizing and doing some marketing initiatives with the sales force to achieve the same thing. I don't expect it to be 40% with the Monitor, but we hope to boost that Monitor growth from what it's been. It's been nice, but we want to boost it a little bit more, not 30%, 40% like we got out of this pump, but healthily. And so, this is why we'll look forward in 2025 if you want to get a little out over our skis. And we expect '25, even though the new pump revenue won't have much of an impact until late in '25 and probably only a small amount. We're seeing '25 as another year in which we can grow again based upon the continued strong business from the pump and implementing some incentive and marketing ideas that we're putting behind the Monitor line.

Okay. That's good color. I appreciate that. Maybe just a broader question. I don't know if it's been brought up in the last couple of calls. In the past, you've been able to push through ASP increases. What's the latest status with ASP? Do you think there's still more room to expand those ASPs, keep them where they are, or how does that look over the next 12 months?

Yes, so we're still doing that. I mean, we're basically our biggest contracts have already happened in the U.S. market. There are a few smaller ones where we'll see some price increases, both for the Monitor, but also a little bit for the pumps. But we're also doing this internationally. Internationally, every time we have these calls, we point out that when the revenue mix is made up more heavily from international, it shows in the gross margins and in the bottom line. So we think there's still some increases yet in a number of countries internationally. So yes, I guess, to your point. But on the domestic side, the big agreements have already been boosted, and by contract, we won't be able to move those again for another 1.5 years or 2.

Okay. That's helpful. And then maybe just the last one for me on the backlog. Typically, you've carried a fair amount of backlog that's helped you execute to expectations. Does that continue to be the case? Do you continue to carry a backlog? And maybe if you can kind of parse out between disposables as well as equipment, that would be helpful.

Yes. Maybe I'll let Matt help you out with that one.

Yes. I mean, related to our backlog, it continues to be strong. We don't really get too deep into what it's comprised of. But we do continue to have growth, and our sales force. We've got four territories now. So the backlog is remaining consistent as it has in the past.

Yes. That's the takeaway. It's pretty consistent. So if you were looking, yes, this is one reason why we're bullish on where we can get through the rest of this year and even into next year. Backlog has been very steady.

Perfect.

One moment for our next question. Our next question will be coming from Jason Wittes of ROTH.

Congrats on a nice quarter. So in terms of what are the timing for the new pump. Could you just walk us through kind of the milestones in terms of when you expect approval? And how long the manufacturing is going to take before and how long it will take to fill orders? Because I think you mentioned it's going to have only a modest impact on Q4 of next year. So I'm just curious in terms of what are the assumptions behind that?

Yes, let me provide more detail on that. As I mentioned, we expect to receive the 510(k) this month, but it's difficult to make predictions until we get the first set of additional information requested by the FDA. Typically, once they have the 510(k), they respond to AI inquiries within 60 to 65 days; they've been consistent with this timeframe, even during COVID. So we could expect to hear back around late October to early November, near our next earnings call. By that time, depending on the number and complexity of AI questions, I should have a clearer idea of whether the process will be lengthy or if we're on a quicker path. Given the filing made in August, it's challenging to predict without further insights but expect to wait around 65 to 70 days for a response. I hope we receive only a limited number of questions, ideally less than 100. If that happens, we could see clearance by late Q1 or early Q2. This aligns well with our plans to move into a new building, where we aim to begin production of the new pump. If we receive clearance in early 2025 and start utilizing the new capacity mid-2025, we will begin building demo equipment and ramp up the sales team to promote the new pump and take orders. While we expect some revenue from the initial orders in Q4, it won’t be substantial, as there is a sales cycle involved. We won’t ship many orders in Q4, but we anticipate having some revenue recorded. The significant revenue will likely materialize in 2026 when the new product gains traction.

I appreciate all the insights on that; it's very helpful. Regarding your pump sales, it seems they are performing better than we expected, likely due to some acceleration in the backlog. However, it appears that monitor sales were a bit lower than we anticipated. Was the performance of that segment also influenced by backlog, or what factors were at play between those two businesses this quarter, and what is the outlook?

Well, like I said, we started getting these orders in from that new program with the 3860 pump in Q1. We just didn't want that backlog from that product to get too long in the tooth and too far out of hand. So yes, we shipped heavily to keep that under control for the old pumps, the 3860s in Q2. We didn't hold back much on the Monitor, but maybe a little bit to get these pumps out ahead of it. So backlog in general, that's your question that you're driving at is very healthy and it still has a good mix, still a little heavy maybe on 3860s, but that will start to balance out as we get towards Q4. I think we'll have Q3 still be a little heavy on the old pump.

Okay. Very helpful. I'll jump back in the queue.

Okay. Again, it's been a great pleasure, once again, that we can report our Q2 '24 excellent results. And it's also with great pride that we can guide that we expect strong performance and are on the right track as the year progresses. With that, I look forward to reporting our future successes as 2024 progresses, and thank you all for joining us.

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