Earnings Call Transcript - IRMD Q4 2024

Operator, Operator

Welcome to the IRADIMED CORPORATION Fourth Quarter of 2024 Financial Results Conference Call. Currently, all participants are in a listen-only mode. And at the end of the call, we will conduct the question-and-answer session. This call is being recorded today, February 13, 2025, and contains time-sensitive accurate information only today. Earlier, IRADIMED released its financial results for the fourth quarter of 2024. A copy of this press release announcing the company's earnings is available under the heading news on their website at iradimed.com. A copy of the press release 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 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 that 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 now like to turn the call over to Roger Susi, President and Chief Executive Officer of IRADIMED CORPORATION.

Roger Susi, CEO

Thank you, and good morning. Thank you all for joining us on today's call. Once again, I am in a fairly unique position to report yet another record quarter, our 14th consecutive quarter. Driving this record quarter is revenue at over $19.4 million. Gross profit came in at $76.1 million with earnings very strong as well, meaning GAAP diluted earnings per share increasing 11% from Q4 2023. For the year, pump sales continued their extraordinarily strong trend. I am also proud to say that the team has brought in monitor bookings domestically for the quarter at a record time rate. This growth is due to the sales team's focus on continuing customer interest and demand. Jack Glenn, our CFO, shall provide more details on revenue and earnings comparisons in a bit. I would like to discuss the new pumps progress through FDA clearance. As previously discussed, we received an additional information letter from the FDA shortly after the submission was made in early September. We've engaged with the agency twice via SIR meetings to clarify certain items in this additional information letter. Our teams have been pushing very hard gathering data and writing the formal responses. We plan to have this response back to the FDA in the first week of April. From there, we would expect a few possible follow-up questions to come in May with our final responses shortly thereafter. Given the turmoil with various agencies in the current administration, it's anyone's guess if the FDA may be operating more slowly than usual. However, we do not see any strong sign as of yet. Therefore, we will expect clearance as previously stated around mid-summer. To reiterate what I mentioned, this new device, the 3870 MR IV pump, will be a 2026 story. Clearance in mid-2025 means that we expect only light revenue from the new device in the fourth quarter of 2025 as the sell-in shipment cycle is measured in months, not days. However, as witnessed by the strong sales of replacing the older IV pump after we discontinued offering our extended maintenance on pumps seven years and older, the new 3870 pump sales are expected to replace the older model as the quarters progress through 2026 and into 2027 and beyond. Finally, regarding our new facility, it's now under construction; progress has been steady and to plan with only minor material supply disturbances, which the general contractor has managed to mitigate well. Interior walls are up, and electrical and plumbing work are well past halfway. With the installation of the glass going in very soon, the building will be totally dried in and ready for the interior final trim. We remain confident in the June final certificate of occupancy and commencement of our move shortly thereafter. I would now like to provide a bit of what we expect to see in Q1 2025. For this first quarter of 2025, we expect revenue of $19.2 million to $19.4 million with a GAAP diluted earnings per share of $0.35 to $0.39. Non-GAAP diluted earnings per share are projected at $0.39 to $0.43. We look forward to reporting revenue of $78 million to $82 million for the full year, and we would expect GAAP diluted earnings per share of $1.55 to $1.65 with non-GAAP diluted earnings per share of $1.71 to $1.81. And with that, I'll turn the call over to Jack Glenn, our CFO, to review the quarter's financial results.

Jack Glenn, CFO

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 2024 was $19.4 million, an increase of 11% compared to the fourth quarter of 2023. For fiscal year 2024, revenue increased 12% to $73.2 million. The increase for the quarter and the year was due to the sustained strong demand for our IV pump, as our end-of-life replacement program continues to drive exceptional growth for our pumps. Domestic sales increased 21% to $16.5 million, while international sales decreased 24% to $2.9 million. Overall, domestic revenue accounted for approximately 85% of total revenue for Q4 2024 compared to 78% for Q4 of 2023. Device revenue increased 12% to $14.3 million in the fourth quarter and 13% to $52 million in fiscal 2024, again driven by a 34% and 36% increase in pump revenue, respectively. Revenue from disposables and services increased 9% for both the fourth quarter of 2024 and fiscal 2024. The gross margin was 76.1% for the fourth quarter of 2024, slightly below the 76.9% for the 2023 quarter. The gross margin for fiscal 2024 increased to 76.9% compared to 76.5% for fiscal 2023. The increase in overhead spending year-over-year was primarily driven by the slight decline in the gross margins in the quarter. Operating expenses were $9 million or 46% of revenue compared to $8.3 million or 47% of revenue for the fourth quarter of 2023. For 2024, operating expenses were $34 million or 47% of revenue compared to $30 million or 46% of revenue for 2023. The dollar increase in operating expenses for the quarter and the year is primarily due to increased sales and marketing expenses due to higher sales commission expenses. We accrue and pay sales commissions on orders booked, so the higher sales and marketing expenses in the fourth quarter reflect the exceptional bookings for the quarter and a record backlog as we enter 2025. Operating income was $5.8 million for the quarter and $22 million for fiscal 2024, as we maintained a solid operating margin of 30% for the quarter and the year. We recognized a tax expense of approximately $5 million for fiscal 2024, resulting in an effective tax rate of 20.8% for the year and 18.9% for the fourth quarter. This rate was in line with the 20.9% effective rate in 2023. On a GAAP basis, net income for the quarter was $0.40 per diluted share compared to $0.36 per diluted share for the 2023 fourth quarter. On a GAAP basis, net income for fiscal 2024 was $1.50 per diluted share compared to $1.35 per diluted share for fiscal 2023. On a non-GAAP basis, adjusted net income was $0.44 per diluted share for the fourth quarter of 2024 compared to $0.39 per diluted share for the fourth quarter of 2023. On a non-GAAP basis, adjusted net income was $1.66 per diluted share for fiscal 2024 compared to $1.48 per diluted share in 2023, an increase of 12% year-over-year. Cash from operations was $6 million for the three months ended December 31, 2024, up from $3.9 million for the same period in 2023 as we drove efficiencies in our working capital management, particularly in inventory. For the three months ended December 31, 2024, our free cash flow, a non-GAAP measure, was $2.9 million, down from $3.3 million for the same period in 2023. This decline is related to our ongoing capital expenditures for construction of our new building, which were $2.7 million for the quarter. As Roger noted, we expect to complete the new facility by June, and we'll spend approximately another $5.5 million to complete the project. And with that, I will turn the call over to the operator for questions.

Operator, Operator

Thank you. We will now start our Q&A session. Our first question comes from Jason Wittes of ROTH Capital Partners. Please go ahead, Jason.

Jason Wittes, Analyst

Hi, thanks for taking the questions and solid quarter here. So in terms of next year, should we assume that the sales force is going to focus more on the monitor business and we see an uptick there? How do you see this 2025, at least on the top line sort of forming?

Roger Susi, CEO

Hi, Jason, yes, this is Roger. Good question. I've spoken to it, I guess, the last maybe two quarters here, probably since midyear last year, that 2025, we would indeed be highlighting sales of the monitor as far as how we are going to incentivize the sales team. We would expect the monitor business in 2025 to be significantly impacted. As I mentioned, it started to show already. We had some very strong bookings for the monitor in this fourth quarter. So yes, 2025, as you put it, is going to have more to come on the monitor.

Jason Wittes, Analyst

So related to the uptick, has there already been sort of a shift in focus of the sales force or as part of the reason we saw this sort of uptick in monitor business? Or is it just sort of...

Roger Susi, CEO

Yes, yes. I'd say midyear, slightly past last midyear. We did some minor tweaks to the goals surrounding the monitor versus the pump, and that's starting to show. It's bearing some fruit already in Q4. It didn't impact the pump business. So I'm pretty happy with that.

Jason Wittes, Analyst

Yes. So if I consider your bottom line assumptions, will R&D decrease now that you have submitted for the pump, and what should I expect for gross margins in 2025?

Jack Glenn, CFO

Yes, Jason, this is Jack. From the R&D spend, I would say it's going to be pretty consistent, maybe a little uptick from where we're at right now as we might add some headcount in that area into 2025, but fairly consistent. As far as our gross margin, I think...

Jason Wittes, Analyst

In R&D?

Jack Glenn, CFO

Yes, in R&D, yes. And then as far as the gross margin, I would say that we right now feel that it's pretty much going to be in line with where we're at, in the 76%, 77% range going into 2025. Always a little dependent upon the mix as far as geographical, as you know, about roughly 20% of the business is international, and we sell it at fairly exciting discounts through just distribution. But overall, I should say, we're pretty much in that range for 2025.

Jason Wittes, Analyst

Sorry, just to clarify, on a dollar basis or a percentage basis, when you say in...?

Jack Glenn, CFO

Percentage basis. Yes. Pretty consistent in that, like I said.

Jason Wittes, Analyst

Okay. Got it. And then, I guess that means if I look at the map in terms of plugging in the numbers you provided for guidance, it sounds like there will be some leverage in general and administrative expenses and sales and marketing. I don't know if you can elaborate on how that might play out this year?

Jack Glenn, CFO

Yes, we are hopeful that we will achieve some leverage in our General and Administrative expenses. Sales and marketing, as I mentioned, is a significant part of our variable costs, particularly due to sales commissions, which we saw reflected in our fourth quarter results. We do account for commissions based on bookings, and we had a very strong bookings quarter again. This is evident in the increased sales and marketing expenses in Q4. Looking ahead, we expect expenses to remain in a similar range, but we anticipate achieving a bit more leverage as the year progresses, always considering performance against our plans. If performance exceeds expectations, that's certainly a favorable situation.

Roger Susi, CEO

This year, as we prepare for the new pump next year, we will be extending our efforts, which may seem like overextension in 2025 to get ready for the 2026 launch of the new pump. We will be adding some support personnel, including clinical specialists, and starting to implement additional territories. Therefore, we anticipate cost increases that won't be directly tied to commissions from actual sales made in 2025.

Jason Wittes, Analyst

Got it. I will jump back in queue. Thank you very much.

Roger Susi, CEO

Good to talk.

Nelson Cox, Analyst

Hey, Roger and Jack. This is Nelson Cox on behalf of Frank. Thanks for taking the questions. Just to follow up, if I'm correct, the last discussion indicated that 35 territories would be the optimal number following the new pump approval, compared to 30 currently. Has there been any change in your perspective on the ideal sales organization after the new pump approval?

Roger Susi, CEO

No, that is still the plan. Of course, it means we'll see that ground starting a little early. We won't reach 35 in calendar year 2025 on one hand, but we will be adding a few extra above our current 28%. That's why we'll incur some expenses in preparation for right-sizing the sales team to handle the business we anticipate having within pump.

Nelson Cox, Analyst

Perfect. And then it sounds like the backlog is providing good visibility, and good to see the strength there. Can you maybe just walk us through how you're thinking about backlog as we move through the year? Any commentary on how you're thinking about the overall composition of the backlog possibly changing throughout the year would be helpful. It sounds like monitors maybe take a bigger portion with the focus there on the sales team, but any additional color there would be helpful.

Jack Glenn, CFO

Yes, Nelson, this is Jack. As we mentioned, we had a very strong backlog at the beginning of the year, which gives us excellent visibility, particularly for the first half. Currently, the backlog is very strong in pump bookings, but as Roger pointed out, we've also seen solid bookings for monitoring units domestically. While there's a slight bias toward pumps right now, our plan remains to increase monitor bookings as we progress. Overall, this gives us great visibility, especially for the first half of the year.

Nelson Cox, Analyst

Perfect. And then maybe just one last quick one. Of the current pump installed base out there, can you just walk us through starting in 2026 how many pumps you think you can renew a year with the 3870?

Roger Susi, CEO

Do you mean this replacement business?

Nelson Cox, Analyst

Yes.

Roger Susi, CEO

Yes. As we have discussed previously, there are over 4,000 of our current 3860 model pumps that are older than five years. We aim to manage the demand, targeting about 800 to 1,000 replacements of those systems, which translates to roughly 1,600 to 2,000 pumps since most of the systems we will be replacing are twin-channel systems in the U.S. market. This means that, given that we are currently selling about 1,200 twin-channel pumps, we are looking at more than doubling our sales of pumps.

Nelson Cox, Analyst

In 2026?

Roger Susi, CEO

2026, yes.

Nelson Cox, Analyst

All right. Thank you.

Roger Susi, CEO

The demand is expected to be around 800 to 1,000 replacements of those systems, which translates to approximately 1,600 to 2,000 pumps, since most of the systems we will be replacing are twin-channel systems in the U.S. market. Currently, we are selling about 1,200 twin-channel systems, so we anticipate more than doubling the number of pumps sold.

Operator, Operator

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

Roger Susi, CEO

Yes. Well, thanks. One last thought I had here is regarding concerns that folks may have over these various tariffs that are being implemented. I'd like to say that this will impact most every manufacturer in the U.S. who has some exposure to that. In our case, we source only three or four rather expensive components from countries that are going to be affected by the tariffs, and increasing and/or increased tariffs over what we've already been paying. Of course, there's a larger number of inexpensive components, which we feel the impact from those is very negligible. But still, these larger parts make up less than 3% of our BOM cost, the bill of material cost. Given that tariffs are only a fraction of that, therefore, do the math, and we wouldn't expect tariffs to affect gross margin materially. I just thought I'd speak to that briefly. And with that, as always, it has been a great pleasure to take this opportunity to review IRADIMED's progress for you all. We also should state that we expect strong performance as 2025 progresses. Thank you.

Operator, Operator

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