IRadimed Corp

NASDAQ:IRMD

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the IRadimed Corporation Second Quarter of 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, August 1, 2024, and contains time-sensitive accurate information only today. Earlier, IRadimed released its financial results for the second quarter of 2024. A copy of this press release announcing the company's earnings is available under the heading News on our 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 and on the company's website at iradimed.com, and a replay will be available on the website for the next 30 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 are focused on future performance, results, plans and events that may include the company's expected future results. IRadimed reminds you that the future results may differ materially from those 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. Mr. Susi?

[Roger Susi, executive]

Thank you, operator, and good morning, and thank you all for joining us on today's call. I'm very happy to report yet another record quarter. In fact, our 12th consecutive record quarter. Driving this record quarter was revenue at over $17.9 million. In addition, gross profit was up, reaching 78% and earnings came in very strong as well, with GAAP diluted earnings per share increasing 19% from Q1 of this year.

Recall that the pump order intake rate in Q1 was very strong. And Q2 now reflects the revenue generated as we move to keep the pump backlog in check. Plus this pump backlog being mostly domestic results in the sizable gross margin. Once again, our team is executing very well, and product demand remains strong, actually extraordinary in the case of the current 3860 model IV pumps.

We are on target to have the strong year that we have planned, even though the new 3870 IV pump is still not on the menu. I'll defer to Matt, who's standing in for our CFO, Jack Glenn, this morning, for more details regarding the revenue and earnings comps.

So let me move on to the new pump progress. It's all about getting that clearance that we've been working so hard to achieve. Of course, key to this is having a clear, concise complete 510(k) filed an soon. My recent commitment for 510(k) delivery was in August, and we are very confident that it will be in the FDA's hands in these next few weeks of August.

Again, FDA will ask questions in some time -- sometimes we'll transpire during the review and additional question period. We will have a better indication of the time required for final clearance of the 510(k) after receiving that first response and list of questions that we fully expect from FDA, which we expect to see in late October.

At this point, as I have stated in the past, the 3870 will be a 2026 story revenue-wise. Clearance in mid-2025 means that we would expect only light revenues from this new device in Q4 '25 as well as the cell and shipment cycles are measured in months, not days.

Due to strong increases in sales of the existing pump, helped by order or replacement of these older pumps that are 7 years and beyond, which we started seeing strongly in January 1, and -- we have now stepped up efforts on the Monitor business via new sales strategies and incentives. Though the Monitor business has been steady and strong, we believe these new incentives and methods will drive Monitor growth to get a new level.

There's also been a steady adoption of our -- the FMD device. This relatively new offering is gaining in the market, though there is an inertia due to the placement of many of these units tied to construction of new MR suites. Construction being rather drawn out process and subject to delay, places a limit on the speed of delivery and revenue for the FMD line, dissimilar to the pump and Monitor. Still, as you will hear from Matt, revenue for the FMD is growing.

Finally, a bit about our new headquarters. Construction is well underway, and the weather has not been overly cooled to the schedule. The walls and roof should be up and nearly dried in by the time of my next report. With the exception of moving -- with our expectation, excuse me, of moving just before next summer, right in time to begin production of the newly cleared 3870 MR pump.

Now before Matt steps in for Jack comes online, I'd like to finish with a report of what we see in Q3. For the third quarter 2024 financial guidance, we expect revenue of $18 million to $18.2 million, with GAAP diluted earnings per share of $0.34 to $0.37 and non-GAAP diluted earnings per share, $0.38 to $0.41.

Accordingly, we reiterate our guidance for the full year '24, and we expect to report revenues of $72 million to $74 million, with GAAP diluted earnings per share annually of $1.37 to $1.47 and non-GAAP diluted earnings per share of $1.52 to $1.62.

Now I'd like to turn the call over to Matt Garner, who as I said, is going to stand in for Jack, who's up on the leave this morning. Matt?

[Matt Garner, executive]

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 measures on the last page of today's release.

As we reported earlier this morning, revenue in the second quarter of 2024 was $17.9 million, an increase of 11% compared to the second quarter of 2023. We -- this increase was due to strong bookings and resulting backlog for our pump in the first quarter. This strength in bookings for the pump continued into the second quarter.

Domestic sales increased 19% to $15.5 million, and international sales decreased 23% to $2.4 million. Overall, domestic revenue accounted for approximately 86% of total revenue for Q2 2024 compared to 80% for Q2 of 2023. The -- Device revenue increased 17% to $12.7 million. This was driven by a 52% increase in pump revenue. Revenue from disposables and services decreased 3% and -- to $4.7 million for the second quarter of 2024, while our maintenance contracts remain stable at $600,000.

As Roger mentioned, the gross margin was 78.1% for the second quarter of 2024 compared to 75.5% for the 2023 quarter. This increase in gross margin is primarily due to favorable geographic sales mix of domestic revenue, a decrease in raw material costs and direct labor efficiencies.

Operating expenses were $8.4 million or 46% of revenue compared to $7.2 million or 44% of revenue for the second quarter of 2023. We -- on a dollar basis, this increase is primarily due to higher sales and marketing expenses for higher sales commissions and sales activity expenses along with higher regulatory and payroll and benefit expenses. The noted strength in the gross margin resulted in income from operations growing 13.4% to $5.6 million for 2024 second quarter.

We recognized a tax expense of approximately $1.4 million during the second quarter of 2024, resulting in an effective tax rate of 21.8% for the quarter, which is in line with the effective tax rate of 21.1% in 2023. On a GAAP basis, net income was $0.38 per diluted share, an increase of 15% and -- as compared to $0.33 for the 2023 quarter. On a non-GAAP basis, adjusted income was $0.42 per diluted share for the second quarter of 2024 compared to $0.36 for the second quarter of 2023.

The -- Cash from operations was $6.6 million for the 3 months ended June 30, 2024, which is up $3.5 million for the same period in 2023. We -- for the 3 months ended June 30, 2024, our free cash flow, a non-GAAP measure, was $5.4 million, up from $3.1 million for the same period in 2023.

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

[Operator]

[Operator Instructions] . And our first question will come from Frank Takkinen of Lake Street Capital Markets.

[Frank Takkinen, analyst]

Congrats on all the progress. I wanted to start with 1 maybe on the revenue growth expectations line item. Obviously, pumps is growing very well as of recently, given the 7-plus year old warranty force conversion.

Should we expect that continues through the end of the year? Or is that normalized down a little bit lower than the 52% growth rate this year and then monitors comes back? Or maybe just talk a little bit about growth expectations by pumps and monitors for the back half of the year?

[Roger Susi, executive]

Yes. Frank, good to talk to you. Roger here. So yes, we we'll see revenue from this uptick in the 3860, the original -- the existing, the old IV pump, which, as you know, we kicked off with this notice to our customers that we weren't going to do the service contracts on 7-plus year old pumps. So that is coming in fairly steadily.

So your question was, is it going to grow? Well, it was, as I mentioned, it's surprisingly large, frankly, to us what happened. And no, I don't think it's going to grow more, but I do see it carrying us through the rest of these final 2 quarters of '24 and even into '25.

So if you will, we've stepped up to quite a nice plateau. It's some 35%, 40% boost to this 3860 product line. And we feel that's going to stay there. Now it's not going to grow to 45% or 50%. No. But it's going to be very healthy and very much unexpected from what we were looking at 2 quarters ago when we first launched this program.

So it will remain a healthy booster to our revenues, as I said, into 2025. So given that, this is why I mentioned that we're incentifying and doing some marketing things with the sales force to do the same thing. I don't expect it to be 40% with the Monitor. But to boost that Monitor growth from what it's been. It's been nice, but we hope to boost it a little bit more, not 30%, 40% like we got out of this pump, but healthily.

And so, this is why we'll look forward in 2025, if you want to get a little out over our skis. And we expect '25, even though the -- as I mentioned, the new pump revenue won't be much of an impact til late in '25 and probably only a small amount. We're seeing '25 as another year in which we can grow again based upon the continued plaque oil business from the oil pump, and pulling off some incentive and marketing ideas that we're putting behind the Monitor line.

[Frank Takkinen, analyst]

Okay. That's good color. I appreciate that. Maybe just a broader question. I don't know if it's been brought up in the last couple of calls. In the past, you've been able to push through ASP increases, what's the latest status with ASP? Do you think there's still more room to expand those ASPs, keep them where they are? Or how does that look over the next 12 months?

[Roger Susi, executive]

Yes. So we're still doing that. I mean, we're -- basically our biggest contracts have already happened in the U.S. market. There's a few smaller ones, which we'll see some price increases, both for -- mostly with the Monitor, but also comp a little bit.

But we're also doing this internationally. Internationally, every time we have these calls, we point out that when the revenue mix is made up more heavily from international, it shows in the gross margins and in the bottom line. So we think there's got to be some increases yet in a number of countries internationally.

So yes, I guess, to your point. But in the domestic side, the big -- the big agreements have already been boosted and we, by contract, we won't have -- we won't be able to move those again for another 1.5 years or 2.

[Frank Takkinen, analyst]

Okay. That's helpful. And then maybe just last one for me on the backlog. Typically, you've carried a fair amount of backlog that's help you execute to expectations. Does that continue to be the case? Do you continue to carry a backlog? And maybe if you can kind of parse out between disposables as well as equipment, that would be helpful.

[Roger Susi, executive]

Yes. Maybe I'll let Matt help you out with that one.

[Matt Garner, executive]

Yes. I mean, related to our backlog, it continues to be strong. We don't really get too deep into what it's comprised of. But we do -- we continue to have growth, our sales force. We've got a 4 territories now. So the backlog is remaining consistent as it has in the past.

[Roger Susi, executive]

Yes. That's the takeaway. It's pretty consistent. So if you were looking yes, this is one reason why we're bullish on where we can get through the rest of this year and even into next year. Backlog has been very steady.

[Frank Takkinen, analyst]

Perfect.

[Operator]

One moment for our next question. Our next question will be coming from Jason Wittes of ROTH.

[Jason Wittes, analyst]

Congrats on a nice quarter. So in terms of -- what are the timing for the new pump. Could you just walk us through kind of the milestones in terms of when you expect approval? And how long the manufacturing is going to take before and how long it will take to basically fill orders? Because I think you mentioned it's going to have only a modest impact on Q4 of next year. So I'm just curious in terms of what are the assumptions behind that?

[Roger Susi, executive]

Yes. Yes, let me give you some depth there, right? So as I mentioned, so we'll get the 510(k) in this month, really to make a prediction on how we expect it to come out until we see this first round of additional information requested by the FDA. I could -- it's anyone's guess. So it's very crucial what we'll see with that first AI ramp. That I can predict pretty well when that will happen. They're pretty steady once they get a 510(k) to get AI questions back to the applicants in 60, 65 days. They've been -- they've been pretty well able to do that. Even during the COVID period with -- they were able to get us questions back in 65, 70 days.

So that would put us some time, let's say, latter part of October, early November. That's about when we'll have our -- it will be getting close to when we'll have our next earnings call. So really by next earnings call, depending on the scope and depth of these AI questions, I'll be able to tell you we got a longer slog or it's looking like we're on a faster track, from -- at this point, having no benefit of that and just making a filing in August, it's -- it's -- it's very difficult to predict.

So got to give me about 65, 70 days if you to hear something back or started from us we should get it in later in this month. to get really any real color on that. So after that, right, I'm hopeful that we get a handful -- we get no more than a few handfuls of questions, certainly not 100 or 200, but less than that. And if that's the case, then I think we're on a pretty good track to have this in cleared in the latter part of Q1 or early part of Q2.

So that will fit in fairly well if that happens. If we have clearance towards the middle of next year, certainly, it will be fine. That's the time we'll be moving into our new building, as I mentioned. And that's where we really plan to start up the production of the pump is with that increased capacity in the new pump.

And so given that we get clearance in that early part of 2025 and we have new capacity online right in the middle of 2025, that's when we'll start building our demo equipment and getting the sales teams all amplified up and really hit the ground and start to talk about the new pump and take orders. So it won't be really a question of making pumps because by the time we actually get orders to fill, the initial few orders, this is why I said Q4 will show some revenue we anticipate from 3870, but probably not huge amounts, those would just be the initial orders coming in. And it takes -- there's a sales cycle here.

So given that we start showing the product in Q3, No. We won't have tons of orders to ship in Q4, but we expect to have something that will be on the board. The real story, as I said, is probably getting into 2026. That's when the revenue will really start to be significant from a new product.

[Jason Wittes, analyst]

Okay. That's -- I appreciate all the color on that. That's very helpful. And then in terms of -- I know you characterized the backlog, but if I think about your pump sales, it sounds like they're nicely above our expectations. I think that was -- I'm guessing a lot of it to do with acceleration of the backlog to some degree. At the same time, it seemed like the monitors were a little lighter than at least our expectations. Was that also backlog driven? Or what were the dynamics between those 2 businesses and what you saw this quarter and what the outlook might be?

[Roger Susi, executive]

Well, like I said, we started getting these orders in from that new program with 3860 pump in Q1. And we just didn't want that backlog from that product to get too long in the tooth and too far out of hand. So yes, we shipped heavily -- we shipped heavily to bring -- keep that under control, old pumps, 3860s in Q2.

We didn't -- we didn't hold back much on the Monitor, but maybe a little bit to get these pumps out ahead of it. So backlog in general, that's your question that you're driving at is very healthy and it still has a good mix, still a little heavy maybe on 3860s, but that will start to balance out as we get towards Q4. I think we'll have Q3 still be a little heavy on the old pump.

[Jason Wittes, analyst]

Okay. Very helpful. I'll jump back in queue.

[Roger Susi, executive]

Thanks. All right. Good to talk to you, Jason.

[Operator]

And I would now like to turn the call back to Roger for remarks?

[Roger Susi, executive]

Okay. Again, it's been a great pleasure, once again, that we can report our Q2 '24 excellent results. And it's also with great pride that we can guide that we expect strong performance and are on the right track as the year progresses. With that, I look forward to reporting our future successes as 2024 progresses, and thank you all for joining us.

[Operator]

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