Earnings Call Transcript - IRMD Q2 2025

Operator, Operator

Welcome to the IRADIMED CORPORATION Second Quarter of 2025 Financial Results Conference Call. This call is being recorded today, August 1, 2025, and contains time-sensitive accurate information. Earlier, IRADIMED released its financial results for the second quarter of 2025. A copy of the press release announcing the company's earnings is available on their website at iradimed.com. The press release was also submitted to the Securities and Exchange Commission on Form 8-K and can be found at sec.gov. This call is being broadcast live on the company's website, and a replay will be accessible on the site for the next 90 days. Some information in today's session will include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, focusing on future performance, results, plans, and events, including the company's expected future results. IRADIMED reminds you that actual future results may vary significantly due to various risk factors. For a detailed description of these 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, which can be accessed for free 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?

Roger E. Susi, CEO

Thank you, operator. Good morning, and thank you all for joining us on today's call. I am indeed very pleased to report yet another record quarter, marking our 16th consecutive quarter of record revenues. For the second quarter of 2025, we achieved revenue of $20.4 million, a 14% increase over the same period last year. Gross profit came in at 78%, with earnings very strong as well. GAAP diluted earnings per share increased 18% from Q2 of 2024. Pump shipments led performance in the quarter as our 3860 MRI IV pump continued to excel in Q2. In addition to the great pump performance, I am also very happy to report that shipments of our MRI patient monitor grew 9% and that bookings in Q2 indicate that our emphasis on monitoring sales for 2025 can be expected to achieve our plans with this product line as well. I'd like to quickly follow up on comments regarding tariffs and DOGE impacts, which we had discussed at some length during our earnings call of Q1. We can now look back and see that though tariffs have been collected on some of the components we utilized, the actual impact is still very small. We do feel, however, that as tariffs become stable and finalized, especially Chinese tariffs and as pre-tariff inventories dwindle here within our stocks, we will have a better idea of the measurable tariff impacts to manage and report upon in the future. As for DOGE effects upon various agencies and possible issues secondarily affecting IRADIMED, such impacts did not materialize. In fact, as announced on May 22, the FDA cleared our new 3870 IV pump systems for distribution. With this long awaited and hard-fought FDA action, the road ahead for IRADIMED is clear and wide. Since the founding of IRADIMED 20 years ago, this clearance and the sales growth that the new pump will ignite will prove to be a seminal event. Reflecting a moment, when I founded IRADIMED, frankly, though we had a strong vision that an MRI IV pump would be a highly successful niche device, my revenue targets from then now appear overly modest, being in the double digits. Now that revenue vision looks to be passing the $100 million revenue run rate as we progress through 2026. I could not be prouder of what we have done with this fascinating MRI niche. Let me share how we envision these next several quarters. Most of you have seen the effect on the sales of our existing legacy pump, the original design core from 20 years ago, when we simply discontinued offering service contracts for units 7 years and older. This action led a number of customers to replace older 3860 pumps with newer, newly manufactured 3860 pumps. But now that we have a new state-of-the-art pump with 20 years of technological advancement, we anticipate a huge demand for replacing older 3860 model pumps starting at the 5-year-old level. For context, in the U.S. market alone, there are over 6,200 5-plus-year-old 3860, 61 pump channels up for replacement. We currently sell approximately 1,000 such channels annually into the domestic market. We will target adding to that base of 1,000 channels per year another 1,000 channels through update replacement sales from that 6,200 units that are over 5 years old. This will be our target in 2026. In subsequent years, we expect to increase the drawdown of old pump channels from 1,000 to over 2,000 and growing and so on. Again, adding the increased sales for replacements into the current base run rate of 1,000 a year, and you can understand why I see piercing that $100 million revenue run rate in 2026 and continuing strong growth for years afterwards. To put numbers on this, for our domestic opportunity only, as we sell 2,000 3870 pump channels annually, with a slightly higher ASP we anticipate, the 2025 domestic pump device revenue currently expected at $28 million in 2025 will become nearly $50 million, adding in disposables, then international sales plus the MRI monitor business, and one can understand my confidence in breaking through this $100 million revenue range. Now let's discuss our updated financial guidance. For the third quarter of 2025, we expect revenue of $20.5 million to $20.9 million, representing 12% to 14% growth over Q3 2024, which was $18.3 million. We anticipate GAAP diluted earnings per share of $0.41 to $0.45, and non-GAAP diluted earnings per share of $0.45 to $0.49, reflecting a 10% to 12% growth over Q3 2024's $0.40 to $0.43, respectively, tempered by anticipated, but short-lived operational inefficiencies during our facility transition, which we've just moved into our new building. For the full year 2025, we are raising our guidance to reflect our strong first half performance. We now expect revenues of $80 million to $82.5 million, up from our prior range of $78 million to $82 million, representing 9% to 13% growth over 2024's $73.2 million revenues. GAAP diluted earnings per share now expected to be $1.60 to $1.70, up from $1.55 to $1.65, and non-GAAP diluted earnings per share is $1.76 to $1.86, up from $1.71 to $1.81. These ranges account for approximately $2.6 million in stock-related compensation expense, net of tax for the full year and $0.6 million for Q3. We also remain committed to delivering value through our $0.17 per share quarterly dividend declared for Q3 and payable on August 28, 2025.

John F. 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. For the 3 months ended June 30, 2025, we reported revenue of $20.4 million, a 14% increase from $17.9 million in the second quarter of 2024. This growth was driven by strong performance across all product lines with MRI compatible IV infusion pump systems contributing $8.2 million, up 19% year-over-year and patient vital signs monitoring systems contributing $5.9 million, up 9%. Disposables' revenue grew 14% to $4.2 million, reflecting increased utilization of our devices while Ferromagnetic Detection Systems and Services revenue also saw a solid gain. Domestic sales increased 18% to $18.2 million, and international sales decreased 9% to $2.2 million. Overall, domestic revenue accounted for 89% of total revenue for Q2 2025 compared to 86% for Q2 2024. Gross profit was $16 million, up 14% from $14 million in Q2 of 2024 with a gross margin of 78%, consistent with the prior year. The strong margin performance was supported by increased overhead absorption as we built inventory ahead of the new facility's opening. Operating expenses for the quarter were $9.2 million, up 9% from $8.4 million in Q2 of 2024, driven by higher sales and marketing expenses to support our growth and modest increases in general and administrative costs. Research and development expenses remained steady at approximately $0.9 million. Income from operations grew 21% to $6.8 million from $5.6 million in Q2 2024. Tax expense for the quarter was $1.6 million, resulting in an effective tax rate of 21.2%. Net income was $5.8 million or $0.45 per diluted share, an 18% increase from $4.9 million or $0.38 per diluted share in Q2 of 2024. On a non-GAAP basis, net income was $6.4 million or $0.49 per diluted share, up 17% from $0.42, excluding $0.6 million of stock-based compensation expense net of tax. Now turning to our balance sheet. We ended the quarter with cash and cash equivalents of $53 million, up from $52.2 million at year-end 2024. Cash flow from operations was a strong $7.7 million for the quarter, up 17% from $6.6 million in Q2 of 2024 and $12 million for the first half, up 14% from $10.5 million. Free cash flow was $4.9 million for the quarter and $5.3 million for the first half, reflecting capital expenditures of $6.7 million year-to-date, primarily related to the new facility. We expect final payments of approximately $1.1 million for the facility in Q3, bringing the total construction cost to approximately $12.6 million. And with that, I will turn the call over to the operator for questions.

Operator, Operator

Our first question comes from the line of Frank Takkinen from Lake Street Capital Partners.

Frank James Takkinen, Analyst

Congrats on all the progress and congrats on the 3870 clearance. I was hoping to start with one on kind of current backlog. I saw the comment and heard your positive remarks about a record backlog. Can you talk about the composition of that backlog and then kind of marry that into how you expect 3860 sales to trend in front of 3870 launching?

John F. Glenn, CFO

Sure, I can address that. As we mentioned, we had a record backlog as of June 30. This backlog included both pumps and a strong monitoring component. This gives us good visibility for the second half of the year, particularly as we prepare to commercialize and introduce the 3870, while we still have a solid backlog of 3860s to support our needs during this period.

Roger E. Susi, CEO

Frank, it was great to hear your voice. Thank you for the question. You also wanted to know how the orders for the legacy 3860 pumps would trend. They are still trending very strongly, and that’s why we are optimistic as the year comes to a close. At this point, we feel in control of how those orders will taper off, which relates to when we will send our sales team out to actively promote the new pump. Currently, we don’t want them to do that, but we plan to start around December. We believe the orders for the older pump will remain substantial and robust until we begin discussing the 3870 in December.

Frank James Takkinen, Analyst

Got it. Very helpful. Clear. And then Roger, I wanted to follow up on some of your comments. I appreciate all the color on kind of 3870 renewal potential. How do you think about the cadence of that ramp to the $50 million of pump revenue? I assume it builds over time, but any thoughts around how that kind of scales throughout 2026 would be helpful.

Roger E. Susi, CEO

Yes. Our plan, as previously mentioned, is to sell a small number of 3870s in Q4. While this will not significantly impact revenue, our goal is to gather feedback from some of our key users regarding any suggestions or minor adjustments we might want to implement in the product. We intend to start this around Christmas and New Year's, and by that time, we will also be fully showcasing the 3870. The bookings for the new pump in the first quarter won’t reach the numbers I previously discussed. They will only be beginning to generate revenue. As you know, there's a process and timing involved with customers issuing purchase orders. Although we have been focusing on the resale of 3860s, there will be customers ready to transition to the new pump. However, I expect the pump bookings in Q1 to be weak. Revenue may not reflect this weakness due to our substantial backlog. Thus, while Q1 bookings for pumps may be somewhat low, by the second quarter, we anticipate a strong recovery in pump bookings, which will continue to accelerate through Q3 and Q4. By the end of 2026, as I indicated earlier, the overall business run rate is expected to be around or above the $100 million mark.

Frank James Takkinen, Analyst

Got it. That makes sense. And then just last one for me. Obviously, you have a very large opportunity to harvest the renewal cycle with the 3870. But curious if you think the functionality and improvements of the 3870 could expand the overall market and demand in the pump area.

Roger E. Susi, CEO

I haven't really considered that yet. However, as we've mentioned over the last few years during these calls, those who have been with us for a while know that this new pump represents two decades of improvement over our previous model. We aimed to tackle one of the main issues of the old pump, which was its usability. The new pump features a much more modern and interactive user interface compared to its predecessor, including graphics and animations that help guide users through operating it. We believe this is a significant factor that has hindered the adoption of the older pump. Therefore, with the new pump being more advanced and user-friendly, we expect to attract those potential customers who have hesitated to adopt the older model at an increasing rate. I haven't included this potential in the numbers I'm presenting, so there is room for growth.

Operator, Operator

Our next question comes from the line of Jason Wittes from ROTH.

Jason Hart Wittes, Analyst

And solid quarter here. So first off, on the new pump, is there an ASP increase that we should be factoring in here?

Roger E. Susi, CEO

I missed that.

John F. Glenn, CFO

What was the pricing on the new pump?

Roger E. Susi, CEO

Oh, yes. I mentioned that earlier. We expect the average selling price to be slightly higher. We've received this question a few times in past calls. Now that we have received clearance from the FDA in the last few weeks, we've thoroughly analyzed the pricing. It appears that it will likely be around 12 percent higher than the average selling price of the existing pump.

Jason Hart Wittes, Analyst

That's good to hear. Is it possible that the new pricing could put some upward pressure on the gross margins? Can we assume that as well, or is it too soon to tell?

Roger E. Susi, CEO

Well, yes, it should be reflected in that. And it might actually be reflected a little bit more so even in the gross margin because...

Jason Hart Wittes, Analyst

I meant gross margins, yes. But I'll take operating margins as being more important, so it's even better to hear that. Regarding the backlog, how long is it taking you to fulfill it at this point? What is the timing from when an order goes into backlog until it gets fulfilled?

Roger E. Susi, CEO

The situation is a bit different for pumps compared to monitors. The monitor backlog is approximately 4 to 5 weeks, while the pump backlog is around 5 to 6 months, and we are letting that period extend. As I mentioned, we expect pump bookings to be low in the first quarter during this transition. However, revenue should remain strong because we have a significant backlog of older pumps to be delivered. Therefore, there is a considerable amount of time in the backlog.

Jason Hart Wittes, Analyst

Okay. That's helpful. It sounds like customers will see some upgrades from the backlog, but they may not be particularly motivated to upgrade this year and would be satisfied with just receiving a new pump. Is that the correct way to interpret this, or do you expect there to be some upgrades as well?

Roger E. Susi, CEO

In this year, no, we're only targeting a limited number of facilities, basically 3, that we're going to deliver 40 to 50 of the new pumps and to watch those customers, I mentioned before, that we want to just use more as just any things that we need to put a finishing touch to that may come up during watching how people actually interact with and use the pump. And that's why we're going to deliberately have this delay in Q1 is because we're going to wait for that 2, 3 months of education from what we can learn from initially planting about 40 pumps.

Operator, Operator

At this time, I would now like to turn the conference back over to Roger Susi for closing remarks.

Roger E. Susi, CEO

Again, thank you, operator. I'd like to thank those who have ridden along with us on this MRI niche journey, which though always maintaining great revenue growth and margins, at times provide a few white-knuckle twists and turns, mainly due to the clearance process for this new pump. But it is with very clear vision we now see that road ahead, providing us many more years of rewarding growth as we can after nearly 20 years, offer our customers a path to move their MRI IV solution delivery onto our new exciting pump platform. Thank you.

Operator, Operator

This concludes the call. You may now disconnect.