IRadimed - Q1 2024

Transcript

Operator (participant)

Welcome to IRadimed Corporation First Quarter of 2024 Financial Results Conference Call. Currently, all participants are in listen-only mode, and at the end of the call, we will conduct a question-and-answer session. This call is being recorded today, May 2nd, 2024, and contains time-sensitive, accurate information only today. Earlier, IRadimed released its financial results for the first quarter of 2024. A copy of this press release announcing the company's earnings is available under the heading News on their website, 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 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, 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 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 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?

Roger Susi (President and CEO)

Good morning. Thank you all for joining us on today's call. As recently reported, I'm once again very pleased to announce yet another consecutive quarter of record IRadimed revenue generated in our recent Q1 2024 quarter. This is our 11th revenue increase in a row. As this morning's press release announced, in the first quarter of 2024, revenue came in at $17.6 million, representing a 13.7% increase over the first quarter of 2023. GAAP diluted earnings per share for the first quarter were $0.32, while non-GAAP diluted earnings were $0.36 per share, a 20% increase over Q1 of 2023. All product lines performed well, with our inside and outside teams executing exceptionally well.

From the revenue standpoint, in Q1, the MR patient monitor bested the IV pump, and increased by 38% compared to Q1 of 2023. However, this doesn't show the strength of one product line over the other, as bookings for the MR IV pump product in Q1 greatly exceeded expectations. So we actually expect that in Q2, the table may turn in favor of pump revenue. As I previously discussed, we notified customers with pumps seven years and older that our extended maintenance would no longer be offered for such older devices. This, as expected, has prompted the uptick in pump orders we've seen in Q1, which we hope to continue to see in the upcoming quarters as well. To be sure, our major products remain viable and fitting for their markets, while we continue to make inroads with our newer FMD product.

Previously, I've spoken about reducing our delivery time for disposables and the associated reduction of backlog. Though, as seen in financial disclosures, the disposable business remains strong and growing. We have managed to reduce the lead time of these products and continue to work to improve these lead times. Though orders continue growing, production is not outpaced. Along those lines, we recently began construction on our new 61,000 sq ft manufacturing facility here in Orlando, Florida, to consolidate operations, improve efficiencies, and prepare for the continued and expanding growth we foresee. We anticipate spending approximately $13 million on its development over the next 12 months, and we will keep you posted in these coming quarters as construction progresses towards a move-in date.

Now, regarding the progress of our 510(k) submission for the new 3870 MRI IV pump, the team is focused and pushing very hard, yet we are still not quite there, due primarily to some expanded testing. As previously reported, we have engaged a third-party consultant with two very recent ex-FDA reviewers on their staff, from whom we are getting excellent input. Their feedback has, however, driven us to repeat some of the previous tests, mainly because the device is under test from many months ago, and they have undergone some changes. Our ex-FDA consultants believe the FDA would be much more comfortable with all testing done on the absolute final configuration of the device. Therefore, the aim is to have the test reports reference the very latest version of the device, thus removing any questions.

It's anticipated that these steps should impact the delivery of the 510(k) by approximately nine-10 weeks. Still remain on plan with expected clearance in Q1 2025 and plan to show the revenue from the new device in the back half of 2025. Now I'd like to present our expected financial performance guidance for the coming quarter and the balance of the year. For the second quarter of 2024 financial guidance, we expect revenue of $17.6 million-$17.8 million. GAAP diluted earnings per share of $0.33-$0.36, and non-GAAP diluted earnings per share of $0.36-$0.39. We reiterate our guidance for the full year of 2024.

We expect to report revenues of $72 million-$74 million, with GAAP diluted earnings per share of $1.37-$1.47, and non-GAAP diluted earnings per share of $1.52-$1.62. Lastly, I'm pleased to report that our board of directors has declared a quarterly cash dividend of $0.15, payable on May 30, 2024, and we expect to pay the quarterly cash dividend going forward to reward our loyal shareholders. Now, I'd like to 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 have been reported on both a GAAP and 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 first quarter of 2024 was $17.6 million, an increase of 14% compared to the first quarter of 2023. Domestic sales increased 12% to $13.4 million, and international sales increased 20% to $4.2 million. Overall, domestic revenue accounted for 76% of total revenue for Q1 2024, compared to 77% for Q1 2023. Device revenue increased 13% to $11.9 million, driven by a 38% increase in monitor revenue.

Revenue from disposables and services increased 17% to a record $5.2 million for the first quarter of 2024, while our maintenance contracts remained stable at $487,000. The gross margin was 76.1% for the first 2024 quarter, compared to 75.7% for the 2023 quarter. The increase in gross margin is primarily due to increased revenue, decreased raw material costs, and direct labor efficiencies, offset by overhead spending. Operating expenses were $8.6 million, or 49% of revenue, compared to $7.7 million or 50% of revenue for the first quarter of 2023. On a dollar basis, this increase is primarily due to higher sales and marketing expenses for higher sales commissions, sales activity expenses, and payroll and benefit expenses.

As a result, income from operations grew 18.5% to $4.7 million for the 2024 first quarter. We recognized a tax expense of approximately $1.1 million during the first quarter of 2024, resulting in an effective tax rate of 21.1% for the quarter, which was in line with the effective tax rate of 20.9% in 2023. On a GAAP basis, net income was $0.32 per diluted share, compared to $0.27 for the 2023 quarter. On a non-GAAP basis, adjusted net income was $0.36 per diluted share for the 2024 first quarter, compared to $0.30 for the first quarter of 2023.

Cash from operations was $3.9 million for the three months ending March 31, 2024, down from $4.6 million for the same period in 2023. For the three months ending March 31st, 2024, our free cash flow, a non-GAAP measure, was $3.4 million. This compares to a negative free cash flow figure of $1.9 million in the first quarter of 2023, when we purchased the land for our future facility for $6.2 million. Our cash and cash equivalents totaled $45.1 million as of March 31st, 2024. And with that, I will now turn the call over to the operator for questions.

Operator (participant)

Thank you. At this time, we'll conduct a question-and-answer session. As a reminder, to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jason Wittes of ROTH Capital Partners. Your line is now open.

Jason Wittes (Managing Director and Senior Research Analyst)

Hi, thanks for taking the question and nice quarter. In terms of the monitor business, yes, it did look quite strong, obviously. Have you sent any communications to the field about your monitors and about the competition that may have spurred on some growth in this quarter?

Roger Susi (President and CEO)

Hi, Jason. Good to, good to hear from you. I'm not quite sure I understand the question, though. How about,

Jason Wittes (Managing Director and Senior Research Analyst)

Yeah, so, I mean, I know that you basically sent a directive to the field or to your customers that you're no longer going to service the pumps after seven years. Have you done anything similar with monitors that might have spurred on growth? Or how would you-

Roger Susi (President and CEO)

Oh.

Jason Wittes (Managing Director and Senior Research Analyst)

The growth, the growth was surprising this quarter, so I'm just curious if there were any-what, what's behind it or what your thoughts are in terms of what's behind it?

Roger Susi (President and CEO)

Oh, no, it's maybe it was buried a little bit in my comments when I said, you know, it doesn't really show so much strength of one product line, pump or monitor, over the other. It's a matter of timing more than anything else. So, but no, we absolutely, you know, the monitor, actually, the competitive nature of the monitor is that it's quite advanced and it's state-of-the-art as is. So we wouldn't be, absolutely not, you know, putting out any sort of a letter... you know, obsoleting any facet of it, including support. You know, there's, you know, we haven't even been selling them for five years.

Yeah, that's just the, you know, I just have to say it's just simply the strength of the team going out and selling monitors.

Jason Wittes (Managing Director and Senior Research Analyst)

Sounds good. Yeah, it's impressive. It was a strong number, much stronger than I was anticipating. And then in terms of what you said about the submission for the 510(k) for the new pump, I guess that would put it. I think originally it was last communication it was sort of expected second quarter, and now I guess you're saying 9-10 weeks. I guess that would put it into the third quarter, in terms of when you would submit that 510(k)?

Roger Susi (President and CEO)

Yeah, to put months on it. Yeah, to put months on it, we'd anticipated getting it out of here by the end of this month. Yeah, that's what we've been focusing on. But, you know, with this curve ball here, you know, it's an abundance of caution to redo some of these tests. And, of course, then getting them scheduled has been a delay because we rely on third parties and all that. So, yeah, we think it's gonna add about nine-10 weeks to that. So that would put us... That puts us somewhere very end of July or early August. We think of it more monthly rather than something that's tied to a quarter.

Jason Wittes (Managing Director and Senior Research Analyst)

All right, well, I appreciate that precision, and it's good to hear that. And then maybe just final question. I mean, the communique you put out definitely seems to be spurring on growth in pumps. If you look at, I don't know if you can give me color in terms of if you look at who's been upgrading or who's been replacing, has it been many of those? I mean, I don't know if you can give us any parameters that can kind of show how many of those pumps that are getting replaced now are the ones that got the communique that they're no longer to be serviced after seven years.

Roger Susi (President and CEO)

Well, we were anticipating that very question just before-

Jason Wittes (Managing Director and Senior Research Analyst)

Okay.

Roger Susi (President and CEO)

The call. Yeah. So, we didn't, we don't have some definitive metric to give you, but we will shortly. We'll pass that along. But, generally, it's a substantial part of the bookings that I mentioned, this big, this rather large booking uptick in Q1. And, and it's pretty substantially from that. But like I say, we'll get some... We'll have some numbers to share with you very shortly.

Jason Wittes (Managing Director and Senior Research Analyst)

Okay, great. I'll jump back in queue. Thanks a lot.

Roger Susi (President and CEO)

Hmm? Yeah, awesome.

Operator (participant)

Thank you. One moment for next question. Our next question comes from the line of Frank Takkinen of Lake Street Capital. Your line is now open.

Frank Takkinen (Senior Research Analyst)

Great, thanks for taking the questions. Roger, Jack, congrats on a good start to the year. I was hoping to ask one on the guidance. Obviously, you had a nice outperformance versus your Q1 expectations, and then I think you kind of hinted at the expectation for pumps to be strong next quarter from some of the Q1 ordering. Was curious kind of the thought process you went through when thinking about slightly increasing the guidance versus reiterating it. Was it just a function of conservatism, or was there anything else baked into that thought process?

Jack Glenn (CFO)

Well, I think, Frank, that yeah, I think if you've you know from our past experience here, I think we've tried to be you know somewhat conservative in the guidance we give. And I think you know that still is second half of the year is certainly some you know much bigger numbers in order to hit that. So but we feel you know confident and you know certainly as we progress throughout the year, we'll you know certainly may be you know provide updates on that. But for right now, we think that's the best position for us to reiterate our guidance for the year as is.

Frank Takkinen (Senior Research Analyst)

Perfect. Perfect. So then on the, maybe just a follow-up on, backlog, generally speaking, obviously a little plus or minus here. So I think if I heard correctly, you burned down some of the disposable backlog, but perhaps the pump commentary resulted in pump backlog increasing. Can you just net out, total backlog, how much visibility you have, and how that gives you confidence going through the rest of the year?

Jack Glenn (CFO)

Well, of course, we don't give the exact numbers, as you know. But, again, it's probably very much in line with where the backlog was, you know, as we came into the end of the year. So, remains strong, gives us good visibility, at least a quarter out for sure, but, very, very strong and stable backlog. And especially, again, a lot of that too, due to the pump backlog, going into this Q2.

Roger Susi (President and CEO)

Yeah. Well, maybe to add a little more color, Frank, good to talk to you. You know, that though we are trying to shave that lead time and associated backlog with the disposable side, which we're making progress, as I said, due to the orders on the hardware side, what Jack's saying is the backlog remains pretty consistent, as it's been the last half a dozen quarters.

Frank Takkinen (Senior Research Analyst)

Got it. That's helpful. And then maybe just one more for me on the monitor side. I think, Roger, we've talked about in the past, the day-to-day business or quarter-to-quarter business. You talk about the active systems being replaced on the monitor side, and your share of that market, and then the, the broader 10,000 or so pieces of equipment installed. Maybe just give us an update how you feel you're, you're penetrated into those, how you feel, about the low-hanging fruit opportunity still existing within those, and just anything else you could talk about in those, monitoring markets?

Roger Susi (President and CEO)

... Yeah. Well, good, good question. So, we still don't have the lion's share of the market. We're still the underdog, so that means there's still quite a bit to go. We estimate we're just nudging close to 30-ish% of this business, right? So there's still plenty more for us to go. Having said that, of course, with every incremental percentage gain still against a well-entrenched competitor, you know, the low-hanging fruit is a little higher on the tree. So, you know, that's it. It's life. That's the way it works. So, you know, the team is jumping, getting the ladders and trying to reach up to a little bit more than they had to do the quarter before and the quarter before that, certainly.

But, we still are scratching away at that existing open share of what's the monitor business, which is by and large, you know, one to one with magnet, and that's still where we're operating at. We have had a little luck, you know, we're starting to. You know, the real upside, as we've mentioned, and presented in the past, is to have this multiplier effect for the transport strategy, like we developed with the pumps, happen with the monitor. And, you know, we need to put maybe one or two more little features onto the pump to really make that very smooth, but we're already starting to get some nibbles there. And a few of these monitors each quarter that we bring in are related to, let's say, more than one per magnet, an extra one.

They're leaning towards starting to adopt this transport theory. That's yet to be rolled out over, you know, the coming quarters. As I said, we still got our hands full, just nipping away at the existing placements of monitors. So we'll eat pretty well for still a number of quarters doing what we've been doing, and then we hope to roll out this transport strategy and really get the multiplier effect on top of these monitors, to where they're not just one monitor per each MRI.

Frank Takkinen (Senior Research Analyst)

Got it. That's helpful. I appreciate all the color and congrats again on the strong start. Thanks.

Roger Susi (President and CEO)

You bet! Thanks. Good to talk to you, Frank.

Operator (participant)

Thank you. This concludes the question and answer session. I would now like to turn it back to Roger Susi for closing remarks.

Roger Susi (President and CEO)

Cool. Thank you, operator. Good. Again, we're pleased with our Q1 2024 results as stated, and we also say as guided, that we expect continued strong performance as the new year progresses. So, we look forward to reporting our future successes to you, and thank you all.

Operator (participant)

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