Roger Susi - President and Chief Executive Officer Chris Scott - Chief Financial Officer.

Chris Lewis - ROTH Capital Partners Alex Silverman - Special Situations Fund.

Ladies and gentlemen, thank you for standing by. Welcome to the IRadimed Corporation Third Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode.

[Operator Instructions] And as a reminder, this conference is being recorded today, October 30, 2015 and contains time-sensitive information that is accurate only as of today. Earlier today, IRadimed released financial results for the third quarter of 2015.

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. A copy of the form 8-K 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. The agenda for today’s call will be as follows. Roger Susi, President and Chief Executive Officer of IRadimed will present opening comments.

Then Chris Scott, IRadimed’s Chief Financial Officer, will summarize the company’s financial results before opening the call up to questions. Some of the information to be furnished in today’s session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are those focused on the future performance, results, plans and events and include the company’s expected results for 2015. IRadimed reminds you that future results may differ materially from these forward-looking statements due to a number of 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 maybe obtained for 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. Mr.

Susi?.

Good morning and thank you everyone for joining us. Our third quarter results released earlier this morning reported revenues of $8.2 million compared with $3.8 million last year. We also reported non-GAAP diluted earnings of $0.19 per share compared to $0.03 in the third quarter of last year.

This was another strong quarter, with our teams throughout the company continuing to perform well and exceeding our expectations. Overall, I am very pleased with our results and look forward to closing the year with exciting results and continued growth. Demand for our pump systems has been strong throughout the year.

And while third quarter is typically our slowest period for bookings, demand in that quarter continued to show strength. We are on track to exit this year with 14 sales managers as we had planned. And now we anticipate we will moderately accelerate our sales teams’ growth plans during 2016.

From the production perspective, we are making gains in output and ramping our capacity to ensure that we will have the ability to fill orders in an increasingly timely manner. To that end, we were able to make progress this quarter in working down our backlog and it now sits at a level below where it was at the beginning of the year.

That said we still have ways to go to achieve our goal of approximately 90 days of backlog, with that goal expected late next year. Now, for the regulatory front.

As I have discussed last quarter, in late January or early this year, we received an FDAAI or additional information letter requesting further information to supplement the pending 510(k) submission.

After significant efforts, both internally and through external testing, we completed the work on our responses shortly after Q2 and submitted all of the supplemental information the FDA had requested. Several weeks after submitting these responses, we received a second AI letter from FDA with five additional items to address.

We are diligently working towards completion of these newest items and expect to finalize our work and submit our responses early in Q1 of next year. The timing of this response is paced by the scheduling of a test being outsourced and is not expected to be completed until mid-December of this year. Now, briefly moving on to new product developments.

As mentioned last quarter, we aggressively increased our R&D efforts related to developments for our patient vital signs monitoring systems.

Since then, we have made significant progress in its development, and I am happy to report that we were able to show our new MR monitor device as a work in progress for the first time at the ASA Conference last weekend.

We received very positive feedback on the direction we are going and we walked away from the conference greatly encouraged about the prospects for the devices acceptance once we are able to begin commercialization.

Until then, we will remain focused upon completing development and continue to target a 510(k) submission for this device of later this year, with pilot production in Q1 and initial distribution in Q2.

Again, I am very pleased with our results and especially proud of the efforts of our team and the progress we are making everyday in all areas of the country. Now, I would like to turn it over to Chris for a summary of our financial results.

Chris?.

Thank you, Roger. Today, I will be discussing our financial results on a GAAP basis, as well as on a non-GAAP basis, our non-GAAP operating results, excluding stock-based compensation expense and the related tax effects. Our free cash flow measure is cash flow from operations less cash used for purchases of property and equipment.

Infrequent tax items are considered based on their nature and included on our non-GAAP analysis as they are not indicative of our normal provision for income taxes. We believe that the presentation of these non-GAAP measures, along with our GAAP financial statements, provide a more thorough analysis of our ongoing financial performance.

You can find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today’s press release. An additional consideration this quarter, for purposes of comparison, is the impact of the domestic stop ship of our pump systems in September of last year, which resulted from the FDA warning letter.

As Roger stated, we reported third quarter revenue of $8.2 million, a 115% increase from third quarter last year. Revenue from domestic sales increased to 95% of total revenue for the current quarter compared to 93% for the same quarter last year. Revenue from devices was approximately 84% and 82% of total revenue for the respective periods.

And revenue from IV sets and services was approximately 16% of total revenue for the current quarter compared to 18% for the same period last year. The composition of revenue between devices and sets and service is in line with our historical averages and on a per pump basis reflect a growing use pattern of our pump systems.

We sold 248 IV pumps this quarter compared to 112 in the third quarter last year. And our average selling price for both quarters was approximately $28,000. Gross margin for the third quarter 2015 was 80.6% compared to 74.8% for the same quarter last year.

The increase in gross margin percent is due to favorable inventory cost changes and its sales leverage during the 2015 quarter. Operating expenses for the third quarter of 2015 decreased to approximately 42% of revenue compared to 64% in the prior year quarter.

This decrease primarily relates to sales leverage and lower legal and professional fees, which was partially offset by higher consulting and engineering expenses related to our increased R&D efforts and activities associated with our 510(k) submission, higher sales commissions, medical device excise taxes and administration fees paid to our GPOs, resulting from higher sales and higher payroll stock compensation and employee benefits costs resulting from our growing employee base.

Our effective tax rate for the current quarter was 42.9% compared to 40.3% for the 2014 period.

The higher effective tax rate was primarily due to the write-off of deferred taxes associated with several of our stock option grants and higher incentive stock option expense, which was partially offset by higher deductions associated with domestic production activities and various discrete items.

On a GAAP basis, net income for the current quarter was $0.15 per diluted share compared to $0.02 per diluted share in the 2014 period. On a non-GAAP basis, net income was $0.19 per diluted share for the third quarter 2015 compared to $0.03 for the prior year quarter.

Weighted average diluted shares outstanding increased by 1.1 million shares over the 2014 quarter resulting from our IPO in July last year and employee stock option exercises since then. Now, taking a look at our cash flow and balance sheet.

For the nine months of 2015, cash provided by operations increased to $5.1 million compared to $3.5 million for the same period last year. Our free cash flow, a non-GAAP measure was $2.3 million for the third quarter of 2015. At the end of the current quarter, we have $23.4 million of cash in investments.

Now, before opening the call to questions, I would like to review our financial guidance for the fourth quarter and full year. For the fourth quarter of 2015, we expect revenue of $8.5 million to $8.6 million and non-GAAP earnings of $0.19 to $0.20 per diluted share.

This compares with revenue of $3.6 million and non-GAAP earnings of $0.03 per share for the fourth quarter last year, which again was significantly impacted by the domestic stop ship resulting from the warning letter. For the full year 2015, we are increasing our revenue and non-GAAP earnings estimates.

We now expect revenue of $31.3 million to $31.4 million and non-GAAP earnings of $0.68 to $0.69 per diluted share. This compares to revenue of $15.7 million and non-GAAP earnings of $0.25 per diluted share for the full year last year. With that, I will turn of the call over to questions.

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Chris Lewis with ROTH Capital Partners. Your line is now open..

Hi, guys. Good morning. Thanks for taking the question and congrats on the strong quarter here. I wanted to start on the top line, once again exceeding expectations, can you talk about how the continued new orders are breaking down between some of the Medrad conversion versus customers adopting that technology for the first time.

You had a nice tailwind here of new business from those Medrad customers over the past year plus. How much more room do you think there is within that customer pool to fuel growth and are you seeing any signs of that opportunity slowing down at all? Thanks..

Yes. That’s a good question. So we are trying to frame that the remaining Medrad opportunity in its proper light and not overweight. I think there is a feeling out there of the remainder of these Medrads being still extremely low-hanging fruit, shall we call it and it’s not really.

So if you recall how we identify our available market as the most likely candidates out there being users, for example, of MR equipment who make these long lines, long IV lines and try to use their in-house magnetic pump in the corner of the room or in the next room and those being our right in our wheelhouse and the easiest to convert.

The remainder of these Medrad units are so similar in their MO from a sales standpoint as to really not warrant breaking them out as some, clearly easier sale any longer.

So to answer your question more directly, what we see in the last quarter, how the sales are going is not much difference between picking up those remaining Medrad units and the rest of the prime market that we have identified.

So yes, I mean I hope that answers your question, so we just don’t want to – we no longer internally here think of that – those remaining Medrads as just sweeping up snow..

Understood. I appreciate the color and appreciate the commentary around the backlog.

I know you don’t want to give the exact number, but can you talk about how – what the production levels are today and your expectations for those to increase going forward, where would you like to get to in terms of pump production?.

Sure I will let Chris take that one..

I think from a high level, our pump production is increasing and that’s been our goal and we are taking steps to ensure that we continue to increase and are able to, like Roger mentioned in his comments, fill those customer orders in an increasing timely manner. So we are increasing our capacity there.

And as far as where do we think backlog is going, we did make the comments directionally, backlog is below where it was at the end of the year. It’s – I mean it’s meaningfully below where it was at the end of year, comfortably below where it was at the end of the year.

And like Roger mentioned, we still have a long way to go to get to the 90-day goal that we are at, but we believe the steps that we are taking will get us there and it will get us there in the second half of next year..

Okay.

Can you provide how many pumps you are making per month or per quarter at this point?.

Yes. On a monthly basis, we are averaging of about 95 pumps, up to 100 pumps a month right now..

Great. Thanks. And for 2016, I know it’s early and you don’t want to provide guidance, I am sure. But can you give us any color just around how you think of the sustainable kind of revenue growth range for next year. Obviously, the comps will become tougher next year versus this year, so I don’t think anyone is expecting another 100% growth year.

But can you provide color or anything to help us think about how we should kind of frame the growth rate in 2016?.

Sure. We – as we have said in the past that, to your point the comp next year will be tougher and no one should expect another 100% increase. And obviously, there were specific reasons that caused that this year.

I think from a high level thinking about 2016, I would revert back to what kind of our normal growth rate or the way that we have talked about our normal growth rate, being somewhere in that 30% to 35% range over the long-term.

So I think if you are starting to think about 2016 already and we are too, I think that’s the kind of the ballpark that you got to play in..

And then just one more for me and I will hop back in queue. In terms of expanding beyond a one product company, you have obviously the internal development program with the MRI monitor that it sounds like it’s progressing according to plan.

As we look at your cash balance and it continues to build here, what’s your appetite for M&A at this point, what types of assets do you think would fit best for the company.

And how hard maybe is it to potentially find an attractive asset that is not only maybe synergistic with your current product offering, but that would not be dilutive to the high margin profile of the company? Thanks..

Yes. Well, our appetite is hot, yes. We aren’t shy about looking up for a great candidate to bring in. It is difficult that pickings are slim. We have had one or two interesting things come by recently, but nothing that I would say is front burner, if you will as far as getting hot, but we are actively looking.

And we would hope to be able in some future quarter, not next quarter certainly. But we would hope that down the road here, a year, a year in a quarter, we might be able to put together a nice little bolt-on feature to help enhance our organic growth..

Great. I will hop back in queue. Thank you..

Thank you. [Operator Instructions] And our next question is a follow-up from the line of Chris Lewis with ROTH Capital Partners. Your line is now open..

Roger, you mentioned you are accelerating sales force expansion in 2016, can you quantify how many reps you plan to add next year and the rationale behind that?.

Yes. We are – we will roll that at least three, as a minimum three and our target we would prefer we might bite off five, that’s where our preferred number is..

Okay.

And will those be have – more heavily weighted towards the beginning of the year or pretty consistent throughout 2016?.

Pretty consistent. Yes, the five will be – should be smoothed out. I think the initial three will come fairly soon. And then, maybe the additional two towards the latter part of the year, the second two quarters. So yes, the idea is we want to get it’s two pronged.

Before we launch the monitor device to this group, we have been sort of tuning up our approach to increasing that multiplier effect, meaning those customers that we have demonstrated can use more than 1 pump per MRI facility, which is some 20%, little over 20% of our base of customers. We want to build that.

And we have identified a number of ways to do that and sales management has been focusing on that now for a couple of months. And we would like to really see that start to take hold before the same sales force essentially and growing sales force will be then getting this added duty to sell the patient monitor sometime in Q2..

And on the leverage and earnings kind of power within the model, guidance for the year implies I think a non-GAAP operating margin of around 40%.

As we think about kind of the leverage within the model going forward where do you see areas that you need to incrementally invest, you have obviously talked about the sales and marketing and potentially some R&D costs.

How should we think about operating margins perhaps a year from now and what are the key levers that investors should consider there?.

Well, we might have – it might show up a little bit in the early part of the year as we ramp up the sales force and the newer guys aren’t quite as effective initially. It takes them some time to get up to speed as the more seasoned group. It might be something you will see on the sales operating cost area.

As far as the engineering cost area, we are spending fairly heavily. I don’t see it increasing much more from this point, but I also don’t see it going down. And I think if you look at it, our development in R&D cost as a percentage of revenue compared to a lot of our peers, we are probably a little light.

And over the long-term that may – that should have a positive ramp, but it won’t be very steep..

And just one more for me kind of like you get by without talking about some FDA stuff. So, I believe I think I missed some of your comments, but I think you said that process is expected to be finalized now in the first quarter of next year.

So first, is that correct? And then second, can you just explain kind of provide maybe a more granular update on the process that’s going on there and what we should expect going forward? Thanks..

Sure. Well, again, we got that request to submit a new 510(k) for the pump last November, which I mean last August with the Warning Letter, which we did last November supplied the 510(k). And then we got a 19 odd question AI letter in January and worked few months to complete the answers to that.

Within a few weeks of submitting of that, as I said earlier, we got five more questions and one of which again requires some out of house testing that’s rather time consuming. And so we don’t anticipate having all those answers to them until the end of the year or early next year. And with that, we hope that the turnaround will be quick.

The FDA has adopted a rather new approach to how they time – how they spend their time on 510(k). So, I might go into that for just a minute. So, the FDA always had a guideline, 90 days to process 510(k)s. And that’s been since the act was enacted in 1976.

For many, many, many years initially, they interpreted that 90-day as a clock that they could start over whenever they ask questions of a company that had submitted a 510(k). So, the way they used to act, in other words, was when they sent us that first AI letter in January that would have restarted their 90-day clock.

So, one thing that we learned with this second AI letter that we received a month ago or so was that they now – I guess Congress put some pressure on them, because over the years, it was recognized that it doesn’t take anywhere near 90 days on average to process a 510(k) because of these accumulating clock restarts.

And so I guess they got a little pressure to get back on and do them in 90 days. So, they swung the pendulum hard in the opposite direction. So, now they have drawn a rather hard line where they don’t restart the clock, they just add it up.

And so if they use up 50 days, for example, in getting a first AI letter out to a company, they don’t restart the clock. They have 40 days left. If they spend another 30 days getting a second AI letter out to the company, they have 10 days left. So, where we are at is we have 2 days left.

So, we have 2 days and we are trying to make a very good argument that these five answers that we are going to give them they should be able to complete in 2 days. And if that fails, what they want you to do as a company is, withdraw the 510(k) and send it in again. That’s the way to start the 90-day clock over. So that’s what we see coming..

Alright, thanks for the time..

Thank you. And our next question comes from the line of Alex Silverman with Special Situations Fund. Your line is now open..

Good morning..

Good morning..

Good morning, Alex..

So, two quick questions.

One, understanding that you are going to launch the monitor methodically and increase production as we go, how should we think about your mix a year after the launch, so call it mid ‘17?.

Yes, good question.

So, we think we will be doing very, very well to get 200 of these systems out in that first year, monitor systems at it, okay?.

Okay..

At the ASP, we anticipate having, that is going to be $10 million or $11 million, something in that range. So, the pump story will still be the larger of the story when we are a year after launch..

But that’s going to be – that’s year one, I assume that will be somewhat back-end loaded given that it’s going to ramp sort of methodically?.

Sure. We are going into a business where there is a player, Invivo Philips, there is a player. This is not – this is on the one hand, it’s not a new virgin market that would have a long runway, let’s say. So, there won’t be many years, but we have a competitor. And we anticipate that the first – we anticipate that in the U.S.

market anyway, the first quarter to four, five months even, there will be a lot of confusion in the marketplace. We are going to basically make a lot of confusion. Our entry will cause this confusion. There will be two sales forces feeling each other out, learning the pluses and minuses of each other and presenting all of that to customers.

We have seen from our showing here last week at the ASA. The interest is key in an alternative to Invivo, but that doesn’t mean they will be writing POs right away..

Sure, sure..

We think, yes, there will be some confusion. The U.S. market take off probably won’t be anything significant in Q2 for sure, but maybe mostly Q3 should just start to move the needle and it will be Q4, I think by the time we are turning things into orders and shipments..

Okay, thank you.

And my second question is can you help us with the hospitals that are buying the pumps for their neuro ICUs, what are you seeing for that opportunity?.

Well, that’s one of the opportunities that I alluded to earlier, where we are focusing our sales force on getting that multiplier up and the targets of that are intensive care areas. And the best one – one of the best ones for sure is neuro-intensive care.

So, we definitely are targeting that as we have already seen it, they have been pulling this multiplier up on their own and so we are going to try to cultivate that with our sales guys more well-trained and well versed on their needs and how to approach that, who to approach and so forth.

So we hope that you will be seeing that sales, as we move along will be growing on two fronts.

They will be growing because we are taking in more of the pump opportunity from virgin customers, those that have no pumps at all now which is we think is a number remaining on the order of 18,000 or so of those prime hospitals now, which we think that number, don’t forget grows as well.

But the short-term growth will be also supplemented by increasing that percentage of our customers who buy more and hopefully, many more than one pump per MR and neuro is the key, of course generally our target is intensive care areas..

Great. Thank you very much..

You’re welcome..

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Mr. Roger Susi for any closing comments..

Alright. Well, Chris and I would like to thank you for participating in today’s call and for your interest and support of IRadimed. Both look forward to speaking with you again soon. And again, thanks for joining the call..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day..