iRadimed Corporation

Welcome to the Eradimed Corporation fourth quarter 2020 financial results conference call. Currently, all participants are in a 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, February 4, 2021, and contains time-sensitive information that is accurate only as of today. Earlier, Eradimed released financial results for the fourth quarter 2020, A copy of this press release announcing the company's earnings is available under the heading News on their website at eradymed.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's website at eradymed.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 Eradimed, will present opening comments. Then Chris Scott, Eradimed'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 may include the company's expected futures results. A rudiment 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 the Securities and Exchange Commission. which again may be obtained for free from the SEC website at SEC.gov. I would now like to turn the call over to Roger Susi, President and Chief Executive Officer of Eradimate Corporation. Mr. Susi, please go ahead.

Thank you, and good morning, everyone. Earlier today, we reported fourth quarter revenue of $8.5 million and adjusted earnings of $0.07. Even though the year-over-year comparison, as can be seen in the accompanying slides, press release, are down, I view these results as noteworthy and obtained in an environment that continues to be challenged by the cyclic and continuing effects of the global pandemic. While the effects of the pandemic are felt throughout the world, there are some bright spots during the quarter and two that I'd like to specifically call out. First, on a sequential basis, fourth quarter revenue continued its upward trend. increasing 11% over the third quarter. This was largely driven by a nearly 24% sequential increase in revenue from our IV pumps and a nearly 17% sequential increase in revenue from our monitoring systems. These increases are a continuation of a trend that we noted in our third quarter, and we believe they are indicative of a successful adjustment by us and our customers toward adding non-traditional sales methods to our traditional practices. We believe these sequential comparisons are important as we compare COVID impacted periods and such a thought process should be enlightening to supplement other typical quarter over quarter analysis. Our second comparative bright spot is that customer orders for the fourth quarter were within 1.2% of our historical high water mark, which was in Q4 of 2019. This performance was in large part driven by orders for our monitoring systems, which continue to perform very well, even in an environment where our ability to conventionally promote our products has been diminished by hospitals limiting access of vendors and causing us to rely more upon the new selling methods that we've developed. Our success in generating orders resulted in a backlog of 4.4 million at the end of the year. This backlog far exceeds previous backlogs going back several years. Both of these bright spots give us optimism about our future. However, we temper that optimism with continued near-term uncertainty created by the pandemic, the global response to outbreaks, and testing and vaccination rollout. I would also like to point out that the fourth quarter is typically our best quarter for bookings, which could be expected to cause breaks in the sequential comparisons beginning in Q1 of 2021. Overall, from a sales perspective, COVID continues to impact our ability to sell our products. However, we are increasingly gaining access to radiology and MR suites, though access to critical care areas of the hospital remain rather minimal. As I have alluded to, we are overcoming these restrictions, however, wherever possible, by remaining persistent in our strategy of engaging customers through virtual means. As a result, we are generating an increasing number of trials and demonstrations for our products during the second half of the year. In addition to selling into traditional hospital channels, we have also seen positive, but trends selling into the veterinary market and outpatient MRI center. This should also assist in creating early traction for our ferromagnetic detection system as we begin our commercialization efforts. We remain opportunistic regarding these channels, and we work towards capitalizing on every opportunity. As an update on regulatory statuses of our next-generation MRI pump, We continue to work through the 510 process and we'll anticipate and still anticipate clearance to take yet another 12 months. At this time, we see no major issues impeding the next gen pumps clearance. Regarding our development of new products, the engineering efforts on our ferromagnetic detection device are wrapping up and we expect to bring this product to commercialization in the coming months. We recently introduced the FMD device to our sales team, where it was received very well, as they quickly recognized the value that it brings to customers. We expect excited, excuse me, we are excited about opportunities that this device brings and our ability to leverage our domestic sales footprint, as well as the capabilities of our distribution partners in international markets. Now I'll turn the call over to Chris to summarize the financial results.

Good morning, everyone. Consistent with past calls, 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 operating 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. 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 reported this morning, fourth quarter revenue, fourth quarter 2020 revenue was $8.5 million, or a decrease of 21.5% compared to the fourth quarter last year. Revenue from domestic sales decreased 11.3% to $7.1 million during the current quarter. And revenue from international sales decreased nearly 50% to $1.4 million for the current quarter. The decrease in global sales was primarily driven by impacts from COVID-19, resulting in lower revenue from sales of our devices, which was partially offset by higher sales of disposables and service. Device revenue decreased 33.6% to $5.3 million for the fourth quarter of 2020. This decrease was driven by a 41.2% decline in IV pump revenue and a 23.7% decline in revenue from sales of our monitoring systems. The average selling price of our MRI-compatible IV infusion pump system during the fourth quarter 2020 was approximately $37,600 compared to approximately $33,100 for the fourth quarter 2019. This increase in ASP relates to higher domestic unit sales and higher sales of the education and drug library components of our pump system when compared to the fourth quarter last year. The impact of these components on ASP were magnified due to a smaller number of IV pump units sold during the current quarter. The average selling price of our MRI compatible patient vital signs monitoring system during the fourth quarter 2020 was approximately $37,500 compared to approximately $32,600 for the same period in 2019. Excuse me. This increase in ASP relates to higher domestic unit sales and a favorable product sales mix when compared to the fourth quarter last year. Revenue from disposables and service grew 13.4% to $2.7 million, and revenue from our maintenance contract was consistent at a half a million dollars for both periods. Excuse me. As we reviewed in our third quarter call, and Roger just spoke about, to supplement an understanding of more current trends, it is useful to sequentially compare COVID-impacted time periods. Considering that, we have now seen two sequential quarters of revenue growth, with Q4 revenue increasing 11% over Q3. This increase was led by a 23.8% increase in pump revenue over Q3 and a 16.7% increase in revenue from monitor sales over Q3. Gross margin was 75.3% for the 2020 quarter and 74.8% for the 2019 quarter. The increase in gross margin percent is the result of favorable inventory reserve adjustments compared to the same quarter last year. Operating expenses were $5.8 million or 67.7% of revenue compared to 5.9 million or 54.3% of revenue for the fourth quarter last year. On a dollar basis, this decrease primarily relates to lower expenses for employee recruiting, payroll and benefits, and stock compensation, partially offset by higher sales commissions and legal and professional fees. We recognize tax expense of approximately $27,000 in the current quarter compared to a tax benefit of approximately $888,000 in the 2019 quarter. Our effective tax rate for the 2020 quarter was 4.1% compared to negative 37.7% for the 2019 quarter. The higher effective tax rate is primarily due to a benefit recognized in last year's quarter associated with the CARES Act that allowed us to carry back our net operating loss created during 2019 two years prior to the enactment of the Tax Cuts and Jobs Act, which increases the benefit to the previously enacted federal tax rate of 35% versus the current federal tax rate of 21%. For the fourth quarter 2020, we recognized net income of $0.05 per share compared to $0.26 for the 2019 quarter. On a non-GAAP basis, net income was $0.07 per diluted share for the current quarter compared to $0.30 for the fourth quarter last year. From a cash flow perspective, we generated $5.8 million in cash from operations for the year ended December 31st, 2020, compared to $10.2 million for the same period in 2019. For the 2020 year, cash provided by operations was positively impacted by stock compensation, accounts receivable, net income, and depreciation amortization. Cash from operations was negatively impacted by prepaid income taxes, prepaid expenses, and other current assets. For the three months ended December 31, 2020 and 2019, our free cash flow, a non-GAAP measure, was $2.4 million and $3.8 million, respectively. Lastly, we finished 2020 with a combined cash and investments balance of $52 million and no third-party debt or other restrictive covenants. Now I'll turn the call over for questions.