Welcome to the IRadimed Corporation Second Quarter of 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, August 3, 2023, and contains time-sensitive information that is accurate only as of today..

Earlier, IRadimed released its financial results for the second quarter of 2023. A copy of this press release announcing the company's earnings is available under the heading News on their website at iradimed.com. A press release copy was also furnished to the Securities and Exchange Commission on Form 8-K and can be found on 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..

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 and 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 like to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr.

Susi?.

Good morning, and thank you for joining us on today's call. We certainly have more good news as can be seen by the announcement this morning. Last quarter, I reported was our top revenue quarter. But today, I once again point out that this Q2 2023 is now our top ever revenue quarter. Q2 also marks our 8th consecutive record revenue quarter..

As this morning's press release announced, second quarter 2023 revenue came in at $16.1 million, representing a 27% increase over second quarter 2022. GAAP diluted earnings per share for the second quarter were $0.33. Non-GAAP diluted earnings per share for the second quarter of 2023 were $0.36 per share, a 38% increase over Q2 2022.

Once again, I'm very proud of the fantastic efforts of the entire team..

Revenue and order growth has been strong for all product lines. The MRI patient vital signs monitor continued to make deep inroads into the competitive base with the growth of pump orders also very inspiring further confidence in our ability to execute.

As with last quarter, we again feel comfortable in raising our guidance for the year, which you will learn of in a moment..

Our sales team has maintained a high level of performance as evidenced by strong customer demand for our products. Our total backlog built through Q2 continues to be at a robust level. Strong backlog provides excellent visibility and allows us to maneuver and reallocate resources as supply issues may arise.

Those supply chain issues continue to become less and less of a concern. We still must be cautious. One trade of our caution can be seen in our inventory buildup..

Once again, I'd like to provide progress toward our FDA efforts surrounding the new 3870 MRIV pump. As reported last quarter, we have since then had a continuing dialogue with the FDA. One such interaction was a face-to-face meeting at FDA in the D.C. area, which was, we understand, may have been the first device company face-to-face since COVID.

FDA personnel continue to work remotely, which we could plainly see by the very few people in that facility during our visit. But there now have been some positions filled. That of the lead reviewer and the director -- or assistant director, I should say, of the infusion devices, whom we met.

And we're hopeful that these new people will come up to speed regarding IV pumps, and that as we refile, they will have the ability to address our 510(k) expeditiously. Massive often repeat testing is underway for us, and we expect to finalize and submit this repeated 510(k) in Q1 of next year..

As background, FDA has been working and clearing mostly repeat 510(k)s from other hospital IV pump suppliers, with recently Fresenius and Baxter just having been cleared.

And although we see a new recall happening earlier this week for yet another IV pump player, which may likely require a repeat 510(k) for them as well, so this adds to the staffing loads upon the FDA people. So we must take a conservative view that the current MRIV pump will remain strong in sales for our revenue stream into 2025..

Now I'd like to recap our recent Q2 performance and indicate our confidence that this upward trajectory will continue. Therefore, we now announce an increase in our guidance with the expectation of revenue for the year at $64.5 million to $65.5 million.

We also raised the forecasted annual GAAP diluted earnings per share to $1.25 to $1.28, and non-GAAP diluted earnings is a raise to $1.37 to $1.40.

For the third quarter 2023, third quarter typically being our weakest, we expect to report revenue of $16.1 million to $16.3 million, GAAP diluted earnings per share of $0.33 to $0.35 and non-GAAP diluted earnings per share of $0.36 to $0.38..

Now I'd like to turn the call over to Jack Glenn, our CFO, to review the fiscal results of the quarter. Thanks, Jack. .

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 quarter 2023 was $16.1 million, an increase of 27% compared to the second quarter of 2022. Domestic sales increased 20% to $12.9 million and international sales increased 67% to $3.2 million. Overall, domestic revenue accounted for 80% of total revenue for Q2 2023 compared to 85% for Q2 of 2022..

Device revenue increased 24% to $10.8 million. This was driven by a 17% increase in pump revenue and a 25% increase in monitor revenue. Revenue from disposables and services increased 40% to $4.8 million for the second quarter of 2023, while our maintenance contracts were consistent at $0.5 million for both periods..

The gross margin was 75.5% for the 2023 quarter compared to 79.7% for the 2022 quarter. The decrease in gross margin is primarily due to the geographic mix as international sales with their inherently lower ASPs represented a larger portion of total sales in the quarter as compared to the second quarter of last year..

Operating expenses were $7.2 million, or 44.8% of revenue, compared to $6 million, or 47% of revenue, for the second quarter of 2022. On a dollar basis, this increase was primarily due to higher general and administrative expenses for additional headcount and higher and legal professional expenses.

As a result, income from operations grew 19% to $5 million for the 2023 second quarter..

We recognized a tax expense during the second quarter of 2023 of approximately $1.119 million, resulting in an effective tax rate of 21.1% compared to a tax expense of approximately $939,000 in the 2022 quarter. This increase is due to higher taxable income in 2023..

On a GAAP basis, net income was $0.33 per diluted share compared to $0.26 in the -- for the quarter in 2022. On a non-GAAP basis, adjusted income was $0.36 per diluted share for the 2023 second quarter compared to $0.26 for the second quarter of 2022..

Cash from operations was $4.6 million for the 3 months ended June 30, 2023, up from $1.4 million for the same period in 2022. For the 3 months ended June 30, 2023 and 2022, our free cash flow, a non-GAAP measure, was $3.1 million and $1.5 million, respectively..

And with that, I will now turn the call over for questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets. .

Congrats on another solid quarter. Roger, you spoke about it a little bit in the prepared remarks, but it sounds like ordering trends continue to be very favorable, especially in the monitoring business.

Can you maybe expand on that a little bit more and then talk about any updates related to Philips and how we should think about the durability of monitoring growth on a go-forward basis?.

Okay. Yes, Frank, good to talk to you. So as you know, this new monitor has been -- or not so new anymore. We've been at it now for 4-plus years. But it's been gaining a heck of a lot of traction in the past year, and we feel that's pretty -- I mean, I don't want to take away from our sales force.

We're doing a great job bringing it to our customers and featuring it and describing it and gaining favor. But still, as you mentioned, there is that one large player, especially in the U.S. market, which is Philips in the MR monitoring business. And we continue to see deterioration in how strongly that they're remaining in this market.

So we've seen that all year, and that trend certainly continues..

On the other hand, we still remain very pleasantly surprised with the demand for the pump. And that still is a very -- they're almost neck and neck in their performance as far as the revenue we're bringing in from these 2 product lines. So it's very encouraging for us.

But again, to your point about Philips, yes, we're not seeing and we don't predict that there's going to be a very strong turn in the direction that things have Philips moving in. We think that they're just milking this business, and so be it. We'll compete on that basis. .

Got it. That makes sense. Maybe one follow-up in monitoring specifically. Can you talk about any pricing changes? I know you guys have been no longer disclosing ASPs. But my assumption is being the only game in town with Philips deemphasizing that business, you're able to take price.

So I was just hoping you could talk about that a little bit more and if there's any forward plans to take more price as well. .

Yes. Well, we -- most of these domestic sales for both products are subject to a GPO contract in some way, shape or form. So it takes a long time to move pricing. But we've been working on that, as you know, for a year plus.

And in fact, 2 of the major GPOs would have had their new pricing start I believe in July, right, Jack?.

Yes. .

Yes. So by the time we start to have new quotes at that level and orders coming in, it'll be probably not in third quarter, just the speed of getting such things done. But by fourth quarter, and certainly all through next year, we will start to also see the fruits of those price increases. It was larger for the monitor.

It was fairly substantial for the monitor and just a smaller amount for the pump. But both of them, you'll -- we think you will see in -- it's a little hard to see it in the revenue because we're increasing the number of devices we sell along with that price went up. But you'll probably see it more in the cost of goods. .

Okay. That's helpful. Then maybe for my last one, just one on the P&L. You guys have done a really nice job consistently growing the top line at a much faster rate than operating expenses.

If you're looking out to becoming closer to a $100 million business over the next couple of years, should we think of any material changes to that cadence or any material changes that need to occur within the P&L to support a $100 million organization?.

We're building a new building, but the stuff there we're talking about would be CapEx and not much anyhow, relatively speaking. So as far as the real cost, the ongoing cost like personnel, that sort of thing, no. .

Yes, I would just add, as a percentage of sales, Frank, it's probably going to stay in line with where we're at, OpEx, as we move forward. Obviously, on the sale side is where the higher sales you'll see over the upcoming quarters that we plan to have that some of that sales commission expense will be higher. .

Okay. That's great. I'll stop there. Congrats again on all the progress. .

Thank you. .

Thank you. .

This question comes from Scott Henry with ROTH Capital. .

Thank you. Gentlemen, another very strong quarter. First question.

When we think about the upside in the quarter and the upside in the guidance, do you think it's more a function of demand or just having additional capacity, meaning you can kind of always fill the demand as long as you can make the product?.

I don't know. You want that one, Jack? I'm a little confused by it. .

Well, I think, Scott, we've been benefiting certainly from having a very strong backlog, and we continue to have a very robust backlog, as Roger mentioned. So certainly, that gives us some visibility in the upcoming quarters from the demand side. But I think, yes, I mean, it's probably both of those things. .

Okay. And then looking longer term, when we think about the monitor market, Roger, I'd be curious your take.

Where would you estimate your market share is today? And how would you think about the annual monitor market in terms of size at your prices?.

Well, the size we think of the market is maybe $125 million-ish. And so you can look at what we have out of that so far. So that would tell you we probably have strong upper 20s percent, right, of that market share. So, yes.

Unless our presence in this market has been increasing the overall market, which I really don't think that's a significant thing, it could be a little bit, but I still think the overall market is around $125 million. So there you have it. And you can figure it out from there that we certainly must have 25%, 26%, 27% of that market. .

And when you think about the growth rate for the monitor market, I mean, obviously, there's a pricing component, an inflationary component. But how should we think about the volume as well as perhaps, as you just mentioned and alluded to, perhaps they order more monitors if they have a better monitor.

How do you think about the growth of that $125 million?.

Well, we're optimistic that we'll be able to grow it.

But that would be with a strategy of multiple, like we do with the pumps where we have these power users that have worked it into their workflow, and because of the portability of it, they use more than 1 per scanner as we've done them with the pump for probably 20% of our customers are what we call those power users.

So we haven't really gone there yet, and that's what we see will really open up the market and take us up above the $125 million. But we are seeming to sell, like you say, a good number anyways. But I still think the majority of those are -- in the U.S.

market, the majority -- I mean that business is primarily because people are moving away from the Philips product, which they bought for years and years and years and are giving us a serious nod and buying our product. .

Okay, great. Final question. The FMD rollout, obviously still very early days.

Given the past couple quarters, how do you think about the size of that potential revenue stream?.

Well, like I've said, we're doing okay. We've talked about this before I think on the last call a bit, right, that the way you sell it is different than you sell a pump or a monitor.

So it's taken a while for our sales force to get their footing on -- though it's the same call point, it doesn't lend itself to the pizzaz and the excitement in the buyer's eye that the pump and the monitors do because they interact with those, the users interact with those on a moment-by-moment daily basis.

FMD, you buy it, you set it, you forget it..

But we're getting to where the sales team is recognizing that, and they're honing their skills. And so we are selling more and more, and the businesses coming up nicely. Still where it goes, I mean, I think this whole market is under $20 million, as I've said before, and that's worldwide. So will it grow? They should.

There's -- every doorway could be protected by -- every door with every MRI should and could be protected by such a device. I think to some extent, the reason it's small is the players that have been out there so far are small. And their method of bringing it to the market is through catalogs, essentially, and advertisements.

They don't have people that walk in and do the sort of direct selling that we do. But having said all that, I'm not ready to get too excited that our chunk of this market, if we could get it to $10 million, I'd be very, very satisfied with that. .

Okay. Great. Thank you for the color. .

All right, Scott. Good to talk to you. .

Our next question comes from Chris with Singular Research, and this is our last question. .

Yes. I'm in for Ashim.

Can you give us an update on the status of your supply chain challenges?.

Well, like I alluded to you, they're fading away. It was starting to get better even 2 quarters ago. So last quarter, I mentioned that we still keep a watchful eye on it, which is what I repeated today. Yes. A year ago, there were fires every week. There was a major problem every week that we dealt with to solve a supply chain problem.

That's fading into the background pretty far at this point. But we still are keeping a careful eye on in. There's still some spot shortages of this or that. But in general, not -- I don't predict much risk any longer, significant chance or risk any longer from supply chain issue. .

Okay.

And how is the new FMD products helping in the cross-selling efforts?.

Well, it's one more -- it's great. Oh, you've got that -- that's an interesting. You go into a hospital and basically everybody has an MRI door that could use an FMD, whether they're shopping for a monitor or a pump at the time. So it's one more reason to go in and talk to your customer and you have something else to show them.

So the cross usage is a nice feature for the sales team. .

Can you comment on the overall -- what's that?.

If you were thinking like bundling or something like that, we look at that opportunity as well. But that's -- we'll see how that plays out over these coming quarters. .

Okay. Okay.

Can you comment on the overall pricing environment for these products?.

Well, our price's going up, as we said. I mean, we've been increasing pricing. So as you can see, we've been selling more numbers of units, and we've been increasing the cost, the sell price of those units. So, it's check plus for both situations. .

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

Thank you, operator. And again, it's with great pleasure that we've reported our Q2 2023 results, demonstrating yet another quarter of very strong growth. It is also with great pride that we can guide that we expect strong performance as the year progresses. With that, I look forward to reporting our future successes as this year continues.

And thank you very much. .

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