Operator
Welcome to Eratamed Corporation's first quarter of 2026 Financial Results Conference Call. All participants are currently in listen-only mode. At the end of the call, we will conduct a question-and-answer session. This call is being recorded today, May 1, 2026, and contains time-sensitive, accurate information that is valid only for today. Earlier, Eratamed released its financial results for the first quarter of 2026. A copy of this press release announcing the company's earnings is available under the heading News on their website at ArataMed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8K and can be found at SCC.gov. This call is being broadcast live on the company's website at ArataMed.com, and a replay will be available there for the next 90 days. Some of the information in today's session will constitute forward-looking statements with the meanings of the Private Securities Litigation Reform Act of 1995. Forward-looking statements focus on the future performance, results, plans, and events and may include the company's expected future results. Eratomab 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 want to turn the call over to Roger Soucy, President and Chief Executive Officer of Aradamed Corporation. Mr. Soucy?
Thank you, Operator, and good morning. Welcome to Aradamed's Q1-2026 earnings call. Sorry for the late start. We have a little microphone. problem on this end. We once again have a very positive performance to announce with the first quarter 2026 revenue of $22 million, a 13% increase over the first quarter of 2025. These results reflect solid execution across our product line with strong revenue contributions from both our MRI compatible IV infusion pump and our MR patient monitor, noting that pump revenues substantially derived from the electricity pump system there are also continues to be growing revenue support for our ferromagnetic detection systems our continued revenue growth combined with disciplined expense management including a modified commission structure drove operating income of 7.2 million a 33 percent improvement over the first quarter of 2025 with net income of $5.8 million, or $0.45 per diluted share, a 22% increase over that prior year. Next, I'd like to provide a brief recap of our expectations for the new 3870 MR IV pump. Recalling that in positioning this new product and its pricing, we had anticipated that the 3870 pump deal typically its ASP would increase by some 10 to 14 percent over the historical 3860 pump ASP however though just beginning initial quoting and actual orders are showing a lift closer to 20 percent for the 3870 ASP additionally we are seeing that a majority of this new business is for quad four pump systems rather than simply replacing the older 3860 dual channel system thus we are seeing both a higher per pump asp and a larger group of customers purchasing twice as many pump channels doubling the number of pump channels at a particular customer site though obviously our sales efforts are in the very early stages these two factors present a most exciting prospect for bookings and revenue as the year progresses opportunities for the 3870 pump system as previously described are both increased penetration of the greenfield which are predominantly predominantly those facilities that continue to deal with iv fluid delivery in the mr setting via various old school workarounds as well as the quite substantial replacement of around its aged install base of 3860 pump systems the most immediate and significant increase coming from the large replacement opportunity this replacement opportunity will be our key growth driver for the next several years as that growth that growth as mentioned uh has now begun to be the driving factor in this second quarter to provide some clarity to the revenue expectations in Q2 and beyond, it will not be a step change, but rather a controlled rank, which is initially composed of declining revenue derived from the older 3860 pump system, domestic orders which have trailed off as expected, offset positively by increasing revenue from the new 3870 system as we ramp up its production. Jack, our CFO, will provide our Q2 guidance for further quantifying how Q2 is expected to develop. To reiterate, the source of the 3870 opportunity is given in our previous call. For the U.S. market, there are approximately 6,400 five-plus-year-old or older 3860, 3861 pump channels up for replacement. The wheat has been selling approximately 1,100 such 3860 channels annually. With the new 3870, we are targeting adding another 1,000 channels per year to replacement sales from the existing 6,400 3860 units that are over 5 years old. As advertised, this starts in Q2 and continues through the rest of 2026 and beyond. it is also important to understand that replacing only a thousand channels per year leaves many thousands more to be replaced in the years to come for our domestic business only selling north of 2000 3870 pump channels annually with the higher asp currently being experienced we expect to approach a 50 million dollar annual revenue run rate for pumps adding disposable maintenance, international sales, the MR monitoring business, the ferromagnetic system, one can understand our confidence in achieving 100 plus revenue run rate as 2026 progresses. Timing has been discussed previously as well but to recap that we did not launch our sales effort for 3870 until late January. As uh as advised we targeted shipping 130 to 135 3870s in q2 both the launch and the manufacture of those initial 130 135 3870s are progressing and planned as we issued in this morning's press release the interest in the new 3870 has been very gratifying the number of orders and the dollar size are well ahead of our expectations this this early in the product launch giving us great encouragement still however q2 revenue will not fully reflect this high level of exciting order activity as shipping even 135 new 38 systems combined with the declining revenue of older 38 60s, keeps Q2 revenue somewhat in check. Again, it will be the back half of 2026 that will shine as we continue to vote more bumps at higher ASP and increasing production of this 3870 system. I'll turn the call over to Jack Lenn, our CFO, to review the Corps' financial results and provide a deeper color on growth through the balance of the year.
Jack? Thank you Roger and good morning everyone. As an past our results are reported on a gap basis and a non-gap basis you can find a description of our non-gap measures in this morning's earnings release and a reconciliation to gap on the last page for the three months ended march 31st 2026 revenue was 22 million up 13 percent from 19.5 million in the first quarter of 2025. iv infusion pump systems contributed 7.7 million up 28 percent year over year reflecting the fulfillment of 3860 pump backlogs from the beginning of the year patient vital signs monitoring systems contributed 7.1 million up nine percent year over year disposal revenue was 4.9 million consistent with the prior year period while ferromagnetic detection systems contributed 600 000. domestic sales accounted for 82 percent of total revenue consistent with the first quarter of 2025. Gross profit for the quarter was 16.8 million with a gross margin of 77 percent up from 76 percent in the first quarter of 2025. Total operating expenses for the quarter were 9.6 million roughly in line with the first quarter of 2025. General administrative expenses were 4.6 million, sales and marketing were 4.1 million, and research and development were 1.1 million. The increase in R&D was largely due to the end of capitalizing internally developed software for the 3870 compared with Q1 of 2025, as well as new product development for the next generation monitoring. Income from operations for the quarter was 7.2 million. Net income was 5.8 million, or 45 cents per diluted share on a gap basis, a 22% increase over the prior year period. Non-GAAP net income was $6.4 million, or $0.49 per diluted share, up 17%. The effective tax rate for the quarter was approximately 25%. The increase in the effective tax rate for the quarter was largely due to the timing of deductions tied to the windfall deduction for equity grants, which is a discrete item taken at the time of vesting of the equity grants, most of which will occur in the fourth quarter of this year. therefore we anticipate that the rate will trend down and by the end of the year be more in line with previous years we ended the quarter with cash and cash equivalents of 56.4 million cash flow from operations was 8.3 lanes in the quarter compared to 4.3 million in the first quarter of 2025 an increase of 93 reflecting higher net income and favorable working capital movements Non-GAAP free cash flow was $7.89 for the quarter after capital expenditures of approximately $500,000. Also today, the company's Board of Directors declared a regular quarterly cash dividend of $0.20 per share of outstanding common stock, payable on May 29, 2026 to stockholders of record as of the close of business on May 15, 2026. And lastly, for our financial guidance, for the second quarter of 2026, we expect revenue of $20 to $21 million, GAAP diluted earnings per share of $0.40 to $0.44, and non-GAAP diluted earnings per share of $0.44 to $0.48. For the full year 2026, we reaffirm our guidance with a revenue of $91 to $96 million, GAAP deluded earnings per share of $1.90 to $2.05, and non-gap deluded earnings per share of $2.06 to $2.21. The company expects stock-based compensation expense net of tax to be approximately $2.4 million for the full year and $600,000 for the second quarter of 2026. With that, I will turn the call over to questions. Operator?
Operator
Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Frank Takanen with Lake Street Capital Markets. Your line is open.
Great. Thank you for taking my questions, and congrats on all the solid progress. I was hoping to start with a follow-up on, Roger, your comments related to quad system ordering. how do you maybe break that down a little bit why you think folks are going from a single dual channel to ordering for individual channels and then my assumption is you can't assume everybody goes to ordering for channels but is there something specific to call out with some of these early customers that would be more likely to order for systems or is it fair to assume that a lot of your customers reordering could fall into this camp of ordering for systems at once Yeah, good question, Frank.
Yeah, welcome. Yeah, that's a good question. So it's a bit of a surprise that more than half of these orders we've taken so far have been for this cloud system, so that's a bit surprising. You know, we were hoping for maybe 10%, 15% customers we could step up to this, you know, doubling the number of channels they operate. So why? Your question, I guess, is why that happened? So I have to say that, you know, I've got to give the sales force a little credit for this by and large. You know, they are close to the customers, and they felt that, you know, with the new system, the way it works and the way the impression it can leave customers, well, you know, it's smaller than the old pump. and the way they actually step together on a pole that they really work together as for very easily and so we're showing it that way you know we show that we walk in and we were showing the quad stack and when customers see it though they of course hadn't been thinking in terms of that before because they only had a two-channel version before it does seem that it's fairly it's fairly quick that as I said more than half these these previous existing customers fairly quickly see that oh wow we've had that we've had we've had some cases come up over the years that we've been using the older abandonment pump where yeah we needed a third and a fourth channel handy and this this sort of stimulates this conversation to make customers think of those situations where they could see that they needed that many channels and they put the budget through and in another very positive sign has been you know these orders get you know We only started selling this thing in late January, as I pointed out. So orders that we're getting in at this point have been rather quick, quicker than the typical cycle time for getting orders so far. So it's all very positive. But I think that's generally the reason, if you picked it out, that customers do have experience where extra channels were required in the past and they're going ahead and taking advantage of buying a quad staff that's that's great and then maybe just want to follow up on that is there a financial element to it as well are they getting a better per pump deal if they're buying four at a time um no that pump asp uh is as i said uh 24 you know it was higher yeah the bonus price of the previous pump was you know 20,000 so let's recapture that right so the list price the previous pump was 20,000 you can buy the second channel for about another 10 so as we've told many times our typical ASP pump deal it's just under 40 by the time you get the pump and the sidecar and pole and the remote and all that that's where it was landing. So the quad systems we've been selling, again, quad stack of the 3870s, again, the IV pole, the remote control, these are coming in at more than 100,000. So it's very exciting.
Well, that's great. Maybe a bigger picture question, the concept that you laid out from going from around 1,000, I think you said 1,100 pumps a year, to adding another incremental 1,000 on top of that. What are the drivers to that? I assume this concept we just talked about, the quad pump ordering is a significant driver too, but is there an assumption of greenfield capture in that number as well, or is it really just a replacement?
No, no, no. When I was speaking about that earlier in the call, I'm just talking to you for the old pump stock. Greenfield would be extra. And frankly, maybe I'll make it more clear, but frankly, the excitement level and the customers, existing customers calling us wanting to see the new pump is kind of a frenzy right now. I don't see that we're going to have time to start calling on the Greenfield for a while. So, no, that doesn't have any upside from Greenfield factored in at this point.
Yeah, that's great. And just the last one for me, and I appreciate all the time on manufacturing. How are you feeling from that standpoint? I think in our previous conversations, you felt really good about that. But as you're taking orders now and scaling that, how is all of that going?
Well, sales team wants us to ramp it up a lot faster. But, you know, we're trying to take it a bit, you know, cautiously and, you know, ramp it up. Here, that's what I'm talking about, 130, 135 pumps for this quarter. you know the sales team would like us to ship over 200 but we just can't do it we're gonna stay at that level we're gonna get them right and then third quarter you know we'll plan to near double that up again over in the next quarter maybe a little bit more in third quarter and so on in the fourth quarter where we shouldn't be by fourth quarter hitting a pretty heavy stride on the number of these new costs we're kicking out of here and of course having this new facility we got the space and you know it's it's a matter of ramping up
Operator
the know-how and stabilizing the supply chain and so that's why we're being a conservative on the ramp perfect couple thanks for taking the questions thank you as a reminder to ask a question please press star 1 1 I'm sure no further questions at this time I'd like to turn the call back over to Roger Susie for closing remarks.
Well, thank you all once again for joining us on today's call. I'd like to add, as we close the call today, that the market is very excited about the new 3870 pump system, and we are being invited into customer facilities to show the device at a very high rate, and the sales team is rather inundated. Further, we have had bookings with greater than expected ASP, as well as that the majority of those orders thus far are for double the number of pump channels so it's clear to us that the 3870 is having a great acceptance generates great excitement and motivates very positive and rather quick customer response so uh we're quite pleased and with that i look forward to demonstrating rather than success as we further execute the launch of this exciting 3870 mriv pump system and capitalize on the huge replacement opportunity throughout 2026 and beyond thank you thank you this
Operator
concludes the call you may now disconnect
