iRadimed Corporation

Welcome to Iratamed Corporation's second quarter 2020 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. As a reminder, this call is being recorded today, July 30, 2020, and contains time-sensitive information that is accurate only as of today. Earlier, Aratamed released financial results for the second quarter 2020. A copy of this press release announcing the company's earnings is available under the heading News on their website at aratamed.com. A copy of the press release will also be furnished to the Securities and Exchange Commission on Form 8K and can be found at sec.gov. This call is being broadcast live over the Internet on the company's website at aratamed.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 Aradamed, will present opening comments. Then Chris Scott, Aradamed'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, where results, brands, and events may include the company's expected results for 2020. Our Radimed 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 risk and uncertainties that may affect the company's business, Please see the risk factors section of the company's most recent reports filed with Securities and Exchange Commission, which, again, may be 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 ArataMed Corporation. Mr. Susi.

Thank you, and good morning. And let me say that at the outset that I'm very happy and indeed energized now that I have returned to the chief executive position. This is not an interim solution, but one which I look forward to maintaining for some time to come. Having stepped back for nearly a year, provided time to focus on engineering developments, as well as time to see and ponder Radimed's operations from a rather fresh perspective. The future to me is as rich with opportunity as ever. and I relish helping to lead us forward. It's good to be back. So, now for a review of our second quarter. Earlier today, we announced second quarter revenue of $6.8 million, representing a 26.3% decrease compared with the second quarter last year. We also reported a loss of $0.17 per share on a gap basis. with a non-GAAP net income of $0.05 per diluted share. These results were significantly impacted not only by the COVID-19 pandemic, but also a one-time charge to GNA expense of approximately $2.7 million related to the separation of our former CEO. The COVID-19 pandemic has certainly upset the orderly function of governments, economies, markets, families, and life generally. and most certainly nearly all aspects of health care worldwide. It should come as no surprise to anyone to learn that our customers are straining under the various demands and limitations COVID-19 has created. We salute those frontline caregivers dealing with the uncertainty and danger on a daily basis. Bless them all. Of course, there are some locales harder hit than others as we see ICUs in hot spots Thank you for joining us. At the same time, our customers overall have greatly expanded spending to stock up on PPE, medicines, oxygen, and various COVID necessary equipments, such as ventilators and so forth. Further, in the interest of safety, our customers have severely limited access to their facilities. Face-to-face sales meetings are extremely hard to come by these days. The combination of limited access and COVID-oriented spending by hospitals presents challenges for our sales force and thus our ability to provide financial guidance. That said, we believe that by providing insight into what we are doing, some sense of the future can be drawn. But as we heard from health experts, the virus is setting the pace and certainly Eratomed is not alone in experiencing this pressure. In lieu of financial guidance, I believe a review of our business and what we plan will be helpful. Consider that Aratamed is in one niche market, MRI compatible medical devices, with two primary products. The more mature product is our unique world's only non-magnetic MRI V-pump system. For this device, we can identify two distinct types of customers. First is that large green field of potential customers who have yet to adopt our device and, for example, still rely on long lines or refuse patients needing IV therapy during an MRI scan. These customers need a large amount of direct selling effort, which is very difficult without the ability to physically enter a hospital, demonstrate the equipment, engage clinicians, and discover the decision makers. Historically, these Greenfield customers accounted for about half of our IV pump sales. The second half of our IV pump business derives from existing customers who are expanding their use of our equipment within the facility. As you can imagine, sales into the Greenfield have been hit the hardest, while new orders from existing customers, though also challenging to obtain, have been affected much less. Our second product, a relatively new MR patient vital signs monitor, behaves more like the pump business from existing pump customers. This market is more mature and has a robust replacement order process still functioning rather well. You will hear more about how sales of these products have been trending as we review the Q2 financial results in a few minutes. A very positive sign is that international business for both product lines has been fairly robust. And we expect as the rest of the world continues to open, this trend will continue. So what can we do? First off, hospitals aren't completely shut to us. We have continued to perform product training both on-site and virtually and to service our products. Our clinical application specialist team is getting into hospitals that need our support and training. and this is, in some cases, opening a door to increased needs within these existing customers. Also, we still have managed to perform a limited number of in-person demos of our products and we have seen an encouraging uptick in our ability to engage hospital personnel using other means, such as by phone or video conference. Plans to engage customers, I should say, and Draw In Business have been formulated. These plans are being deployed, modified and deployed again on a very frequent basis. We're honing our abilities in the area of virtual sales calls and moreover demonstrations, producing various tools to assist this effort. Though in its infant stage, we see promising signs that such new methods of engagement are workable and indeed yielding positive results. We're also formulating a sales method to take advantage of two recent developments. First was FDA's issuance of a guidance document regarding changes in their, quote, enforcement policy for infusion pumps. That specifically, and with reduced regulatory burden, is advising pump manufacturers to provide remote monitoring and or control of infusion pumps. The second event was the grant of a new patent to Aratamed for a system and method for remote communication with an infusion device. Many, including us, imagine FDA has seen news photos of COVID crowded facilities with multiple IV pumps congesting the hallways. There are IV lines extended dangerously from patient into hallway located pumps. FDA's guidance recognizes This is a pump use hazard, thus the push to adopt remote controls. With the remote control capability of our IV pump, the pump stays close to the patient while staff can hear and respond to alarms, titrate doses, and otherwise handle IV pump control issues at a safe distance from an isolated patient, not only increasing safety but saving on PPP and medicines and so forth. Our IV pump, being the only one with a remote control, now with patent protection, provides the FDA-suggested use safety for those ICU beds with highly contagious patients. I hope to report on this use model more in the coming quarters. Our planning, being responsive to the pandemic's business complications, has not all been entirely made up of exploring new sales methods and markets, but we've also looked within at costs and the value. We had for several weeks, for example, worked our production at 80% hours. We've frozen hiring and reduced management's target bonus expectations and accruals as well. We also carefully reviewed our sales territories and found that a number of expansion territories may not be counted on for a timely development in light of the pandemic's impacts. And so we collapsed significantly. seven territories into the more established remaining 22. This will allow us to focus sales plans on the more proven territories and reduce the cost of selling in territories in which meaningful revenue would likely be several quarters in the future. Regarding our product development efforts, we have only experienced a relatively minor delay in our engineering efforts, mostly due to slowdowns at outside contractors, especially test houses. That said, we have made great progress with the development of our next generation MRI debunk. FDA filing will be submitted within the next several days, and we are becoming more and more excited as this new device has come together these past several months. And we can see it performing. Additionally, user interactions we studied during a number of human factors test scenarios were very encouraging. Also, we've made good progress with the FMD device and still expect to have at least a small number operational before year's end. The launch of a new device may be significantly slowed if the pandemic still weighs on our customers. I'd like to turn the call over to Chris to summarize our financial results.

Thank you and good morning, everyone. As always, I'll be discussing our financial results on a GAAP basis as well as on a non-GAAP basis. Our non-GAAP operating results exclude stock-based compensation expense and other operating expenses that we believe are not indicative of our ongoing core performance. Infrequent tax items are considered based on their nature and excluded from the provision for income taxes, as these items are not indicative of our normal provision for income tax. Free cash flow is cash flow from operations, less cash used for purchases of property and equipment. We believe the presentation of these non-GAAP measures, along with our GAAP financial statements, can be helpful in providing 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. As stated this morning, second quarter revenue decreased 26.3% compared to the second quarter last year. Revenue from domestic sales decreased 38.6% to $4.6 million during the current quarter. This decrease was primarily driven by lower device revenue, which we believe is tied directly to the COVID impact that Roger spoke about a moment ago. Revenue from international sales increased 29.3% to $2.2 million for the current quarter. The increase in international sales was driven by higher monitor revenue. revenue from sales of our devices decreased 41% to $3.8 million for the second quarter 2020. This decrease was driven by a 58.8% decline in IV pump revenue that was partially offset by a 1.9% increase in revenue from our monitoring systems. The average selling price of our MRI compatible IV infusion pump system during the 2020 quarter was approximately $30,200 compared to approximately $35,300 for the same period in 2019. This decrease in ASP relates to higher international sales of our infusion pumps recognized in revenue when compared to the second quarter last year. The average selling price of our MRI compatible patient vital signs monitoring system during the second quarter 2020 was approximately $30,600 compared to approximately $32,200 for the same period in 2019.